In re Sterling Foster & Co., Inc. Securities Lit.

Decision Date27 June 2002
Docket NumberMDL Docket No. 1208 (ADS)(MLO). No. 98 CV 1470(ADS).
Citation222 F.Supp.2d 289
PartiesIn re STERLING FOSTER & CO., INC. SECURITIES LITIGATION, This Document Relates To: Joe L. Price, Plaintiff, v. Sterling Foster & Company, Inc. Frank Monroig, Timothy J. Matthews, Athannasios Dogantzis, and Jason John Marowski, Defendants.
CourtU.S. District Court — Eastern District of New York

Stephens & Stephens by R. Gary Stephens, Esq., Houston, TX, for plaintiff.

Ungaretti & Harris by Miriam G. Bahcall, Esq., Chicago, IL, for Defendants Sterling Foster & Company, Inc., Adam R. Lieberman, Frank Monroig, Timothy J. Matthews, and Jason John Marowski.

Covington & Burling by P. Benjamin Duke, Esq., New York City, for Defendant Bear, Stearns Securities Corp.

Athannasios Dogantzis, Defendant Pro Se, no appearance.

ORDER

SPATT, District Judge.

The complaint arises out of claims by the Joe L. Price ("Price" or the "plaintiff") that Sterling Foster & Company, Inc. ("Sterling Foster"), Adam R. Lieberman ("Lieberman"), Frank Monroig ("Monroig"), Timothy J. Matthews ("Matthews"), Jason John Marowski ("Marowski") (collectively, the "Sterling Foster Defendants"), Athannasios Dogantzis ("Dogantzis"), and Bear Stearns Securities Corp. ("BSSC") (collectively, the "defendants") violated the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77l(a)(2); the Securities and Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b); the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962; the Texas Securities Act; the Texas Business and Commerce Code; and the Texas Deceptive Trade Practices Act. This action also alleges common law claims for fraud and breach of contract. Presently before the Court are motions by the Sterling Foster Defendants and BSSC to stay, transfer, and/or dismiss the complaint.

I. BACKGROUND
A. The Procedural Nature of the Case

Price commenced this case on August 5, 1997, by filing a complaint in the United States District Court for the Eastern District of Texas, Texarcana Division. On October 9, 1997, an unexecuted return of service for Dogantzis was filed with the Court. Dogantzis has not appeared in this action. On November 26, 1997, the Sterling Foster Defendants filed a motion to stay, transfer or dismiss the action; on December 17, 1997, Price filed his opposition papers; and on January 5, 1998, the Sterling Foster Defendants filed their reply papers.

On January 5, 1998, BSSC filed a motion to stay or dismiss the action; and on February 17, 1998, Price filed his opposition papers.

One day later, on February 18, 1998, the Judicial Panel on Multidistrict Litigation ("J.P.M.L.") granted a motion by Sterling Foster to centralize a number of actions, including the present one, pursuant to 28 U.S.C. § 1407 for coordinated and consolidated pretrial proceedings in the Eastern District of New York. The J.P.M.L. also transferred the cases to the Eastern District of New York and assigned the Multi-district Litigation to this Court. Therefore, when the present case was assigned to this Court, the motions by the Sterling Foster Defendants and BSSC were pending. On March 12, 1998, BSSC filed with this Court its reply papers in support of its motion to stay or dismiss the action.

B. The Complaint

The following facts are taken from the complaint. In March 1995, Price opened an account with Sterling Foster. Lieberman was Sterling Foster's President and a registered General Securities Principal. Monroig, Matthews, and Marowski were Sterling Foster employees and/or officers and were General Securities Principals and Representatives with Sterling Foster. Although the complaint does not specifically describe Dogantzis' role at Sterling Foster, it appears from the allegations contained therein that Dogantzis was a broker. The complaint alleges that Lieberman, Monroig, Matthews, Dogantzis, and Marowski participated in deceptive trade practices and fraudulent and manipulative sales practices. The complaint further asserts that Sterling Foster representatives and employees made numerous misrepresentations to Price in order to persuade him to purchase stock; omitted material facts when they sold stock to him; misled Price in regard to all aspects of Sterling Foster's firm, business and the methods they used to buy and sell securities (complaint ¶¶ 16-19).

On a date that is not specified in the complaint, a representative from Sterling Foster sold Price $528,161 of common stock in Embryo Development Corporation ("Embryo"). Monroig instructed Sterling Foster employees to tell clients that Sterling Foster would honor stop loss orders because they were "good selling points" (complaint ¶ 14). Price sent Sterling Foster a letter via certified mail instructing Sterling Foster to sell the stock when it dropped to a certain price.

Dogantzis received Price's letter and asked Monroig what steps he should take. Monroig rolled his eyes and said, "`Oh don't worry, just let the traders run it, we'll worry about it later'" (complaint ¶ 14). Sterling Foster did not honor Price's stop loss order causing him to suffer financial losses in excess of $219,435.

When Price asked Dogantzis why Sterling Foster had not honored his stop-loss order, Doganzis replied that if he had executed the order and, thus, sold Price's shares, the stock would have "tank[ed]" (complaint ¶ 14). On March 19, 1996, Price asked Matthews why Sterling Foster had not executed his stop-loss order. Matthews explained that even with the stop-loss order, he needed Price's consent to sell, and Price was unavailable to give his consent. On December 18, 1996, Monroig told Price that if Sterling Foster had executed the "stop-loss" order, the stock may have declined somewhat in value. Monroig maintained that, ultimately, the price of the stock would have risen, and Price would have been angry and disappointed that Sterling Foster had executed the stop-loss order.

After Price lost money as a result of investing through Sterling Foster, its employees and representatives offered him "hot deals" purported to help him recover his losses. On April 26, 1996, Matthews said that he would infuse Price's account with capital as early as the following week in order to compensate him for the losses he incurred from selling the Embryo stock.

On June 14, 1996, Monroig told Price that Sterling Foster could make him $525,000 in approximately four-to-six months. Later in the conversation, Monroig said that he would make Price the sum of $100,000 in thirty days as a showing of good faith. Monroig also stated that if Sterling Foster failed to make $200,000 for Price in sixty days, then Price could file a lawsuit. Monroig summed up his position by stating, "`You know, I mean, you give us the opportunity to take care of what we need to take care of on our end, if, if we can't take care of it, you can litigate the case'" (complaint ¶ 20).

Various Sterling Foster employees and representatives suggested to Price that Sterling Foster could manipulate the price of various stocks. On January 11, 1996, Matthews told Price that on January 22, 1996, he would purchase 160,000 shares of Embryo common stock for the sum of $1.6 for one of his accounts. Therefore, explained Matthews, he knew that "`volume [was] coming into the stock'" (complaint ¶ 21). Price asked Matthews why he was waiting until January 22, 1996 to purchase the shares. Matthews replied that in order to establish a tax loss, he had to wait 30 days from the date he sold the stock to buy it back. Matthews also said that the client on whose behalf Price was purchasing the stock would have the money for the purchase "freed up" on January 22, 1996 (complaint ¶ 21).

Matthews indicated to Price that Sterling Foster could "`pre-arrange a profit in an IPO for Price'" by "cost averaging big blocks" of stock. Markowski told Price that instead of investing in an IPO, he would "`get [Price] in an in and out situation. Meaning, we're gonna buy the stock when it opens up for public trading and we're going to have the stock out of your account by the end of the day ... Might be only two or three points ... but these guys are doing whatever they've gotta do to make me money'" (complaint ¶ 21).

Dogantzis told Price, on more than one occasion, that Sterling Foster controlled the market and could guarantee that the price of a stock would rise. In one conversation, Dogantzis said that two-and-one-half-to-three-million shares of the stock would be purchased the following day, driving the price of the shares up eleven or twelve dollars. Dogantzis also told Price that when Lieberman "needs a paycheck," he tells Monroig to instruct the Sterling Foster's 400 brokers to "aggressively recommend" shares in a particular company. Dogantzis also explained that when 400 brokers are recommending a single stock, the price of that stock rises three or four points.

On May 6, 1996, Dogantzis explained that Sterling Foster could manipulate the market in a stock by telling 300 of their brokers to buy 2 million shares of stock. Regardless of what the company does, Sterling Foster's massive purchasing results causes the price of the stock to rise. Once Sterling Foster stops buying the shares, there is no interest in the stock.

The complaint also alleges that the Sterling Foster Defendants and Dogantzis misrepresented the commissions, mark-ups, or mark-downs they were charging Price. Dogantzis told Price that Sterling Foster did not charge commissions but rather charged a markup or markdown on the stock (complaint ¶ 22).

Price further claims that the Sterling Foster Defendants and Dogantzis made purchases and sales in his account without his permission (complaint ¶ 23). After Sterling Foster made an unauthorized purchase of ML Direct stock on behalf of Price, he contacted Monroig to request an explanation for the purchase....

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