I.B. Trading, Inc. v. Tripoint Global Equities, LLC

• Decision Date: 15 November 2017
• Docket Number: 17–cv–1962 (JGK)
• Citation: 280 F.Supp.3d 524
• Parties: I.B. TRADING, INC., Ian Behar, Joron Management, LLC, Jordan Levy, Thomas Macey and Elizabeth Macey, Individually and as Tenancy by the Entirety, Fusion Capital LLC, Ryan Sasson, Robert Koltun, and Arthur Luxenberg, Plaintiffs, v. TRIPOINT GLOBAL EQUITIES, LLC, Robert Nathan, Mark H. Elenowitz, and Michael Boswell, Defendants.
• Court: U.S. District Court — Southern District of New York

280 F.Supp.3d 524

I.B. TRADING, INC., Ian Behar, Joron Management, LLC, Jordan Levy, Thomas Macey and Elizabeth Macey, Individually and as Tenancy by the Entirety, Fusion Capital LLC, Ryan Sasson, Robert Koltun, and Arthur Luxenberg, Plaintiffs,

v.TRIPOINT GLOBAL EQUITIES, LLC, Robert Nathan, Mark H. Elenowitz, and Michael Boswell, Defendants.

17–cv–1962 (JGK)

United States District Court, S.D. New York.

Signed November 15, 2017

Charles C. Ritter, Jr., Gregory P. Photiadis, Steven William Klutkowski, Duke,Holzman, Photiadis & Gresens LLP, Buffalo, NY, for Plaintiffs.

Mark David Hunter, Jenny D. Johnson–Sardella, Leser Hunter Taubman & Taubman, PLLC, Robert C. Harris, Hunter Taubman Fischer & Li LLC, Coral Gables, FL, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

This case is about an alleged Ponzi scheme marketed as an investment to buy and resell tickets to popular Broadway shows and national pop music tours. The plaintiffs are a group of individual investors and their affiliated entities: I.B. Trading, Inc., Ian Behar, JoRon Management, LLC, Jordan Levy, Thomas and Elizabeth Macey, Fusion Capital LLC, Ryan Sasson, Robert Koltun, and Arthur Luxenberg. The plaintiffs commenced this action by filing a Complaint on March 17, 2017, which they amended on July 14, 2017, against the defendants, TriPoint Global Equities, LLC, Robert Nathan, Mark H. Elenowitz, and Michael Boswell. TriPoint is a broker-dealer registered with the United States Securities and Exchange Commission ("SEC"). Nathan is the Director of TriPoint's Specialty Finance Group. Elenowitz and Boswell are the co-founders of TriPoint. Elenowitz is the Chief Executive Officer ("CEO") of TriPoint, and Boswell is the Chief Operating Officer ("COO") and Chief Compliance Officer ("CCO") of TriPoint. Elenowitz and Boswell are each a Managing Director of TriPoint and together make up TriPoint's "Executive Team."

The plaintiffs allege causes of action for violations of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), (the "Exchange Act") and Rule 10b–5 promulgated thereunder, 17 C.F.R. § 240.10b–5 (First Cause of Action); Sections 9(a)(4) and 9(f) of the Exchange Act, 15 U.S.C. §§ 78i(a)(4), 78i(f) (Second Cause of Action); and Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a) (Third Cause of Action). The plaintiffs also allege state law causes of action for breach of fiduciary duty (Fourth Cause of Action); negligent misrepresentation (Fifth Cause of Action); negligence (Sixth Cause of Action); fraud (Seventh Cause of Action); violation of New York General Business Law § 349 (Eighth Cause of Action); and unjust enrichment and the establishment of a constructive trust (Ninth Cause of Action). The defendants have moved to dismiss the Amended Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6). The defendants also move to strike Exhibit B to the Amended Complaint, and references thereto, pursuant to Federal Rule of Civil Procedure 12(f).

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the Amended Complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiffs' favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the Amended Complaint if the plaintiffs have stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiffs, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.

A claim under Section 10(b) of the Exchange Act sounds in fraud and must meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure and of the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u–4(b). Rule 9(b) requires that the Amended Complaint "(1) specify the statements that the plaintiff[s] contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007). The PSLRA similarly requires that the Amended Complaint "specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading," and it adds the requirement that "if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u–4(b)(1) ; ATSI, 493 F.3d at 99 ; see also In re Eaton Corp. Sec. Litig., No. 16-cv-5894, 2017 WL 4217146, at *1 (S.D.N.Y. Sept. 20, 2017).

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the Amended Complaint, documents that the plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or that the plaintiffs knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002). See also Silsby v. Icahn, 17 F.Supp.3d 348, 354 (S.D.N.Y. 2014), aff'd sub nom. Lucas v. Icahn, 616 Fed.Appx. 448 (2d Cir. 2015).

II.

The following facts alleged in the Amended Complaint are accepted as true for the purposes of the defendants' motion to dismiss.

In early December 2015, Nathan, the Director of the Specialty Finance Group at TriPoint, contacted Behar about an investment opportunity in which Nathan thought Behar and Behar's investment group would be interested. Am. Comp. ¶ 45. Nathan advised that the opportunity was a "no-brainer." Id. Nathan and Behar had known each other for approximately ten years, but this was the first time Nathan had reached out to Behar regarding an investment opportunity. Id. ¶¶ 44–45. On December 10, 2015, Behar and Levy, on behalf of themselves and their investment group, met with Nathan, and with Joseph Meli and Matthew Harriton, at Behar's office in Manhattan. Id. ¶ 49. Nathan, Meli, and Harriton explained the investment opportunity, in which 875 Holdings, LLC ("875 Holdings"), an entity majority-owned by Harriton, would partner with TriPoint to purchase blocks of tickets to popular events, such as Broadway musicals and pop concerts, and resell them on the secondary market for a profit. Id. ¶¶ 37, 38, 54. Nathan, Meli, and Harriton told Behar and Levy that the investments were extremely safe because the investments were backed by actual tickets to the events, which in turn were insured such that the investors would be reimbursed the purchase price if an event was canceled. Id. ¶ 54. Nathan assured Behar and Levy that TriPoint had vetted and conducted due diligence on the investment and the companies offering it and highly recommended it. Id.

Additionally, Nathan provided Behar and Levy with an Executive Summary—marked with "875 Holdings, LLC" and "TriPoint Global Equities, LLC," as well as TriPoint's logo—which anticipated that investors would receive a return on their investments "in excess of 20% per annum," touted the "deep and very unique mix of live event promotion, ticketing, and entertainment finance experience" of 875 Holdings' management, and assured potential investors that there was "No Cancellation Risk" because 875 Holdings would require event promotors to reimburse 875 Holdings for canceled events and/or assure that "acceptable insurance arrangements are in place that will cover the purchased inventory and any expense involved to process ticket refunds." Id. ¶ 64. The Executive Summary also stated that TriPoint would receive a 5% commission based on the total amount of capital received by 875 Holdings. Id. ¶ 74. Nathan told Behar and Levy that he had gone to high school with Harriton, and that Nathan, Meli, Harriton, Elenowitz, and Boswell had all personally invested substantial sums in the venture. Id. ¶ 77.

In mid-December, 2015, Behar, on behalf of himself and the other plaintiffs, attended a meeting regarding the ticket investment at TriPoint's offices with Nathan and Elenowitz.¹ Id. ¶ 81. Elenowitz told Behar that the ticket investment was a "no-brainer" because the investment was backed by physical tickets to the events, which were insured against the risk an event was canceled, and that TriPoint had verified this through its due diligence. Id. ¶ 85. After this meeting, Nathan reiterated that the ticket investment was low-risk, backed by real tickets and insurance, and that Nathan, Elenowitz, Boswell, Meli, and Harriton had all invested their own money. Id. ¶ 95. When Macey asked to review the ticket purchase agreements between 875 Holdings and the event producers, Nathan told Macey that neither TriPoint nor 875 Holdings could allow Macey to review the agreements because they were highly confidential. Id. However, Nathan assured the plaintiffs that TriPoint had reviewed the agreements and was satisfied. Id.

On December 28 and 29, 2015, at Boswell's direction, Nathan sent Levy and Macey e-mails touting TriPoint's compliance department and TriPoint's compliance with Financial Industry Regulatory Authority ("FINRA") "Anti Money Laundering and Fraud Prevention" regulations. Id. ¶ 110. Nathan advised that Boswell was personally performing a compliance review of the ticket...