DiRenzo. v. Tasa Consulting LLC

• Decision Date: 20 October 2021
• Docket Number: 21-cv-3027 (EK)(SIL)
• Parties: DONALD A. DIRENZO, SR. and JOSEPH R. DIRENZO, SR., Plaintiffs, v. TASA CONSULTING LLC, NATIVE AMERICAN ENERGY GROUP, INC., VICTOR WANG, JOSEPH D'ARRIGO, and DARA SNEDDON, Defendants.
• Court: U.S. District Court — Eastern District of New York

DONALD A. DIRENZO, SR. and JOSEPH R. DIRENZO, SR., Plaintiffs,
v.
TASA CONSULTING LLC, NATIVE AMERICAN ENERGY GROUP, INC., VICTOR WANG, JOSEPH D'ARRIGO, and DARA SNEDDON, Defendants.

No. 21-cv-3027 (EK)(SIL)

United States District Court, E.D. New York

October 20, 2021

REPORT AND RECOMMENDATION

STEVEN I. LOCKE, UNITED STATES MAGISTRATE JUDGE.

Presently before the Court in this Securities Exchange Act litigation, on referral from the Honorable Eric R. Komitee for Report and Recommendation, are certain Defendants' motions to dismiss Plaintiffs' complaint for insufficient service of process. See Docket Entry (“DE”) [11], [12]. By way of Complaint dated May 27, 2021, Plaintiffs Donald A. DiRenzo, Sr. (“Donald”) and Joseph R. DiRenzo, Sr. (“Joseph, ” together with Donald, “Plaintiffs”) bring this action against TASA Consulting LLC (“TASA”), Native American Energy Group, Inc. (“NAEG”), Victor Wang (“Wang”), Joseph D'Arrigo (“D'Arrigo”), and Dara Sneddon (“Sneddon, ” together with Wang, the “Individual Defendants, ” and collectively with TASA, NAEG, Wang and D'Arrigo, “Defendants”), alleging violations of: (i) Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b) and 15 U.S.C. § 78t(a); and (ii) Securities and Exchange Commission (“SEC”) Rule 10b-5,

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17 C.F.R. § 240.10b-5; as well as state law claims for (iii) fraud, (iv) fraud in the inducement, (v) unjust enrichment, and (vi) breach of fiduciary duty. See Complaint (“Compl.”), DE [1].

For the reasons set forth herein, the Court respectfully recommends denying the motions.^[1]

I. BACKGROUND

Unless otherwise indicated, the facts set forth herein are taken from the Complaint and are accepted as true for purposes of the instant motions.

A. Relevant Facts

Plaintiffs, father and son, are New York residents. See Compl. ¶¶ 3-4. TASA and NAEG are a Delaware limited liability company and corporation, respectively, with principal places of business in New York. See id. ¶¶ 5, 7. The Individual Defendants are individuals residing in New York. See id. ¶¶ 9, 11. Sneddon is Wang's daughter and a member of TASA, facilitating all communications and financial transactions between the company and Plaintiffs and managing TASA's branding and marketing. See id. ¶ 11, 143-44.

1. Plaintiffs' Personal Relationships with Wang

Joseph and Wang became friends while attending neighboring Long Island high schools in the 1980s, and maintained contact while attending separate out-ofstate colleges. See id. ¶¶ 16-17. In or around 1989, Wang was associated with

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Stratton Oakmont, the brokerage firm that defrauded investors, was eventually shuttered due to its misconduct, and was depicted in the film “The Wolf of Wall Street.” See id. ¶ 18. Wang and his partners purchased securities brokerage firm Duke & Co., Inc. (“Duke”) in or around 1993 and began operating the firm in New York City, with Wang acting as Duke's chairman from 1993 to 1998. See id. ¶¶ 1920.

According to Plaintiffs, Wang and his partners at Duke defrauded investors by, inter alia, manipulating the immediate after-market of the initial public offering of a company and selling securities at artificially inflated prices, ultimately cheating investors out of approximately $650 million. See id. ¶¶ 21-22. Wang pled guilty to an information charging one count of conspiracy to commit securities fraud and one count of conspiracy to launder money in 1999. See id. ¶ 23. The SEC instituted administrative proceedings against Wang and barred him from associating with any broker or dealer in 2000, and the Financial Industry Regulatory Authority (“FINRA”) barred Wang from acting as a broker or otherwise associating with broker-dealer firms. See id. ¶¶ 24-25. Wang pled guilty to another information charging conspiracy to commit securities fraud in 2000 and was incarcerated and ordered to pay restitution in an amount exceeding $11.1 million, a “substantial amount” of which Plaintiffs maintain remains unpaid. See id. ¶¶ 26-28.

Plaintiffs allege that, while incarcerated in August 2014, Wang directed his exwife to contact Joseph and request money and other assistance to get him out of prison. See id. ¶ 30. Joseph attempted to help Wang by, inter alia, searching for an

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attorney to represent him, visiting him in prison, inviting him to reside in Joseph's home for about 15 months, and assisting Wang's family with legal matters. See Id. ¶¶ 33-35. Plaintiffs further allege that they loaned Wang approximately $250, 000 since 2015 to help him with personal and legal expenses, and an additional $170, 000 to “rescue his home” in 2017. See id. ¶¶ 36-37. In December 2018, Sneddon signed the note as to one of Plaintiffs' loans on Wang's behalf. See id. ¶ 39. Plaintiffs assert that they also loaned or invested money to finance Wang's business ventures, including a failed restaurant that resulted in a loss of about $300, 000 to Plaintiffs and a blockchain conference that Wang organized that led to a $250, 000 loss for Plaintiffs. See id. ¶¶ 40-41.

2. Plaintiffs' Investment in NAEG

Plaintiffs maintain that in or around 2017, Wang approached Joseph and asked him to invest in NAEG, a company specializing in oil, natural gas and alternative energy systems. See id. ¶ 42. Wang and D'Arrigo, NAEG's president and chief executive officer, worked together on a prior business venture in the 1990s and were good friends. See id. ¶ 43. Plaintiffs allege that D'Arrigo emailed Joseph in September 2017, attaching a proposed subscription agreement, and that one month later, orally represented to Joseph that the company had been delisted from trading and was raising funds to be relisted on a national stock exchange. See id. ¶¶ 44-46. According to Plaintiffs, in reliance on these representations, Joseph invested an initial $50, 000 for one million shares of NAEG in or around December 2017, followed by subsequent investments of $100, 000 and $150, 000, respectively. See id. ¶¶ 47-49.

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Plaintiffs allege that Wang and D'Arrigo did not disclose to Joseph that NAEG entered into a contract with TASA to provide “strategic services” to NAEG, including developing a corporate strategy, facilitating growth, evaluating strategic relationships and assisting with certain projects, in exchange for over two million shares of NAEG's stock. See id. ¶¶ 50-52.

Plaintiffs allege that NAEG paid Wang $7, 500 per month as a “consulting” fee, and that Wang exercised “complete control and domination over TASA with respect to transactions relating to NAEG, ” including inducing Joseph to invest in the company. See id. ¶¶ 53-55. According to Plaintiffs, Wang and TASA acted as agents and brokers for NAEG in soliciting the sale of unregistered securities to Joseph and others, in violation of the SEC's order barring Wang from associating with any broker or dealer and of FINRA's directive barring him from acting as a broker or otherwise associating with any broker-dealer firm. See id. ¶¶ 56-58. Plaintiffs further allege that NAEG used a portion of Joseph's investment to pay Wang and TASA for their services, and concealed Wang's and TASA's agreements with NAEG so that Wang would appear independent and unconflicted to induce Joseph to invest. See id. ¶¶ 5960. Joseph maintains that, had he known about Wang's and TASA's conflicts of interests with respect to NAEG, he would not have invested in the company. See Id. ¶ 61.

Months after failing to respond to Joseph's emails inquiring as to NAEG's relisting, Wang and members of TASA emailed Joseph a document providing additional due diligence regarding the company on November 27, 2018. See id. ¶¶ 63-67.

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The due diligence report included statements that the anticipated total number of shares issued and outstanding would be in the 100 million share range upon relisting, as well as that foreign investor SJ Global Investment Worldwide Ltd was anticipated to participate in NAEG's capital raise. See id. ¶¶ 68-70.

Plaintiffs maintain that in September 2019, an attorney with the New York State Office of the Attorney General's Investor Protection Bureau (the “OAG”) contacted Joseph regarding its ongoing investigation into NAEG, subsequent to which Joseph repeatedly contacted D'Arrigo and other NAEG representatives requesting details about the relisting and the OAG's investigation. See id. ¶¶ 74-75. On November 7, 2019, Joseph and nonparty Dee Jae Diliberto, who allegedly also purchased shares of NAEG at Wang's urging, sent NAEG and its representatives a joint letter demanding, inter alia, that the company provide them with financial documents and a specific relisting date, as well as explain the basis and nature of the OAG investigation, but D'Arrigo and NAEG's representatives refused. See id. ¶¶ 7677.

On January 28, 2020, the Connecticut Banking Commissioner found that NAEG and D'Arrigo, among others, violated the state's security laws by, inter alia, selling unregistered securities to investors pursuant to, according to Plaintiffs, the same documents NAEG presented to Joseph to induce his investment. See id. ¶ 78. The order required NAEG to provide a list of Connecticut investors that purchased NAEG securities and reimburse them. See id. ¶ 79. Plaintiffs assert that NAEG has not finalized any relisting of the company on any...