Dover Ltd. v. A.B. Watley, Inc.
| Decision Date | 28 March 2006 |
| Docket Number | No. 04 Civ. 7366(FM).,04 Civ. 7366(FM). |
| Citation | 423 F.Supp.2d 303 |
| Parties | DOVER LIMITED and Wendy Sui Cheng Yap, Plaintiffs, v. A.B. WATLEY, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Thomas M. Mullaney, Law Offices of Thomas M. Mullaney, New York, NY, for Plaintiffs.
Sameer Rastogi, Sichenzia Ross Friedman Ference, LLP, New York, NY, Joshua S. Krakowsky, Dechert, LLP, New York, NY for Defendants.
Alain Assemi, Morgan Hill, CA, pro se.
Plaintiffs Dover Limited ("Dover") and Wendy Sui Cheng Yap ("Yap") (together, "Plaintiffs") bring this action for money damages and other relief alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and Rule 10b-5. (See Docket No. 25 (Amended Complaint ("Am.Compl."))). Plaintiffs also assert claims for common law fraud, conspiracy to commit fraud, conversion, breach of contract, breach of the implied covenant of good faith and fair dealing, and negligent misrepresentation. The defendants are A.B. Watley, Inc. ("ABW"); A.B. Watley Group, Inc. ("Group"); A.B. Watley Direct, Inc. ("Direct") (together, the "ABW Companes") Robert Malin ("Malin"), the President of ABW; John J. Amore ("Amore"), ABW's former Chief Executive Officer; two ABW employees, Keith Sorrentino ("Sorrentino") and John Coakley ("Coakley") (together, the "ABW Defendants"); Elfort Company, S.A. ("Elfort"),1 an affiliate of ABW; and Alain Assemi ("Assemi"), who is alleged to be an agent of ABW and principal in Elfort. (See Docket No. 25). Malin, Amore, Sorrentino and Coakley are hereinafter referred to, collectively, as the "Individual Defendants." The ABW Companies, Malin, Amore, Sorrentino, Coakley and Assemi are hereinafter referred to, collectively, as the "Defendants."
In three separate motions, the Defendants now have moved to dismiss the Amended Complaint, pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure, and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(b), for failure to state a claim or plead with the requisite particularity. (Docket Nos. 39, 41, 42, 44).2
In November 2004, the parties consented to my exercise of jurisdiction over this matter pursuant to 28 U.S.C. § 636(c). (See Docket No. 13). Pursuant to that authority, for the reasons set forth below, the motions filed by the ABW Defendants and Assemi are granted in part and denied in part. Additionally, Amore's motion is granted. The Plaintiffs' request for leave to amend the Amended Complaint also is granted insofar as the defects set forth in this Motion to Dismiss can be corrected through repleading.
A. Relevant Facts
The following facts alleged in the Amended Complaint must be taken as true.
Plaintiff Dover is a Singapore corporation in the business of "investment holding," and plaintiff Yap is a resident of Singapore and director of Dover. ( .
At all relevant times, ABW was a broker-dealer and retail securities firm, incorporated and having its principal place of business in New York. (Id. ¶ 5). Group and Direct also were broker-dealers and retail securities firms operated by the same employees and conducting the same business out of the same location as ABW. (Id. ¶¶ 6-7).
Amore served as Chief Executive Officer of ABW until September 2003. (Id. ¶¶ 11, 49). Malin was the President of ABW and Group. (Id. ¶ 8). Sorrentino and Coakley were ABW employees. (Id. ¶¶ 9-10).
Assemi was the sole principal of Elfort, a California company affiliated with ABW. (Id. ¶¶ 12-13). Each of the individual defendants was also a licensed securities broker. (Id. ¶¶ 8-12).
On or about May 25, 2003, Yap discussed with Assemi the prospect of Dover investing $10 million in a "Non-Depletion of Capital Growth Program" ("Non-Depletion Account" or "Account") allegedly offered by ABW in the United States. (Id. ¶ 23). Assemi told Yap that Dover's investment was guaranteed by ABW not to deplete or depreciate, and that Dover would realize a profit of no less than $5 million by September 15, 2003, four months after the funds were received. (Id. ¶ 24). In exchange for the assurance of this high return and security, Dover was to split the profits received with ABW. Assemi, in turn, was to be paid directly by ABW. (Id. ¶ 25).
Assemi's statements to Yap about the account were false because ABW did not offer a Non-Depletion Account to its customers, nor did it have an investment program which guaranteed the security of its customers' funds while also affording them a high rate of return within six months.3 (Id. ¶ 33). Worse yet, at the time these misrepresentations were made, the Defendants intended to invest Dover's money in high risk, speculative securities, if invested at all. (Id. ¶ 35).
On May 26, 2003, Yap completed the ABW Account Application and Registration forms necessary to open an account for Dover and faxed them to Sorrentino. (Id. ¶ 27 & Ex. B). After making certain corrections and changes to the forms requested by Sorrentino, Yap forwarded the fully executed application to him on May 29, 2003. (Id.).
On June 4, 2003, at 2:00 a.m. (Singapore time), Coakley called Yap and explained that ABW's "legal department" required that she change the Dover application to indicate that its investment objective was not "Growth," but "Aggressive Growth/Speculation." (Id. ¶ 29 & Ex. B). Coakley insisted that Yap fax the revised form immediately, even though it was the middle of the night in Singapore. (Id. ¶ 30). Within minutes after she finished talking to Coakley, Assemi called Yap to ensure that she would fax the form immediately. (Id.).
On June 5, 2003, Coakley sent Yap a fax containing a copy of the amended account opening form, along with same-day instructions for the transfer of Dover's funds into the Account. (Id. ¶ 31). Later that day, the Plaintiffs faxed the same documents to Sorrentino, along with "two (2) amended pages for the ABW account application indicating the demanded change from `Growth' to `Aggressive Growth.'" (Id.). Coakley's statements to Yap were false, because Dover did not need to list "Aggressive Growth/Speculation" as its objective in order to open a Non-Depletion Account, or any other account, with ABW. (Id. ¶ 34).
That same day, pursuant to Sorrentino's instructions, Yap transferred $10 million to ABW. (Id. ¶ 32). Yap also executed and returned an ABW Profit Split Agreement that Coakley had requested. (Id.). The next day, Coakley faxed to Yap a PFS Limited Trading Authorization naming Amore as Plaintiffs' authorized agent. (Id. The Amended Complaint does not state that Yap signed and returned this authorization, but it appears that she did.
By June 17, 2003, Yap received an ABW account statement indicating the "loss or absence" of $2,667,739 from the Account for the seven-day period from June 6 to June 13, 2003. (Id. ¶ 39). ABW apparently had allocated this sum to a margin account, not owned by Yap or Dover, that sold certain shares of J.P. Morgan Chase stock on June 1, 2003. (Id. ¶ 40). Similarly when Yap received a statement for the Account for the period from June 1 through June 30, 2003, it reflected an opening account value of only $6,988,859.84, more than $3 million less than Dover had remitted. (Id. ¶ 32).
Upon learning of the initial loss in the Account, Yap called Assemi, who told her that the loss shown on the statement was due to a "computer error" which he would ensure was corrected by the end of the week. (Id. ¶ 41). Assemi further advised Yap that the Account actually had an "`equity' value of approximately $15 million and that ABW was going to `piggy back' Dover's `equity' to `other's equity' to obtain a total of $50 million and then enter Dover into a `bigger payout program.'" (Id.
Despite these assurances, on July 13, 2003, Plaintiffs received a letter from ABW, dated July 3, 2003, which stated that the Account had "declined in value from $10,000,000 to $7,005,173.90." (Id. ¶ 42). The letter requested that Yap sign and return the letter to ABW. (Id.) Instead, Yap contacted Assemi, who sent her a fax the following day, which stated that the letter she had received from ABW did not require her signature and that she should "rest assured that [ABW] is responsible and accountable for [the] funds remaining at their establishment." (Id. ¶ 43 & Ex. C). The letter stated further that, "Mr. Robert Malin, the president of [ABW], assured me this morning that they will be depositing profits into your account." (Id. Ex. C). Assemi also wrote that Yap's "$6.75 [million] ha[d] been transferred to a non-deplet[ion] account," and that "[she would] be more than pleased after [her] great patience." (Id.
On or about July 15, 2003, Assemi explained to Yap that the program had been slow to generate the promised profits, because the total amount invested had to be at least $25 million. (Id. ¶ 45). On July 30, 2003, because Dover had yet to receive any profits, Yap sent Assemi an email in which she reminded him of his promise that Dover would be "paid under ABW account end of July." (Id. Ex. D). Yap's email also stated that "nothing ha[d] come in yet and [Dover had] not received confirmation regarding [$] 3.25 [million] balance in ABW." (Id. Later that day, Assemi emailed Yap that he had been unsuccessful in trying to reach her and that "at [the] absolute latest [August] 15th you can take $5 [million] profit." (Id.
In an "urgent" email dated September 11, 2003, Yap advised Assemi that Dover "still [had] not received any funds from the Programs," and that if $5 million were not remitted by September 16, Dover would send a letter requesting the entire $10 million...
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