Sec. & Exch. Comm'n v. Skihawk Capital Partners, LLC
| Docket Number | Civil Action 21-cv-01776-MDB |
| Decision Date | 20 March 2023 |
| Parties | UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. SKIHAWK CAPITAL PARTNERS, LLC, THE CONVERGENCE GROUP, LLC, CLEMENT M. BORKOWSKI, SEAN A. HAWKINS, and JOSEPH P. SCHIFF, Defendants. |
| Court | U.S. District Court — District of Colorado |
This matter is before the Court on “Defendants Clement M Borkowski, The Convergence Group, LLC, Sean A. Hawkins Joseph P. Schiff, and SkiHawk Capital Partners, LLC's Partial Motion to Dismiss the Complaint for Failure to State a Claim Pursuant to F.R.C.P. 12(b)(6).” ([“Motion”], Doc. No. 19.) Plaintiff United States Securities and Exchange Commission [“SEC” or “Plaintiff”] has responded in opposition to the Motion, and Defendants SkiHawk Capital Partners, LLC [“SkiHawk”], The Convergence Group, LLC [“TCG”], Clement M. Borkowski [“Mr Borkowski”], Sean A. Hawkins [“Mr. Hawkins”], and Joseph P. Schiff [“Mr. Schiff”] [collectively, “Defendants”] have replied. ([“Response”], Doc. No. 22; [“Reply”], Doc. No. 23.) The parties have consented to proceed before a United States magistrate judge for all purposes, including the entry of a final judgment under 28 U.S.C. § 636(c). (Doc. No. 14-15.) After considering the pleadings, the parties' briefings, and the applicable law, the Motion is DENIED.
STATEMENT OF THE CASE[1]
This is a civil enforcement action brought by the SEC against two investment advisory firms, SkiHawk and TCG, and three individual owners and managers of those firms, Mr. Borkowski, Mr. Hawkins, and Mr. Schiff. (Doc. No. 1 at 1.) Plaintiff alleges that, for years, Defendants have repeatedly defrauded three funds they advise, as well as the investors in those funds. (Id.)
SkiHawk, a Colorado limited liability company, has been a Colorado-registered investment adviser since 2011. (Id. at 6.) SkiHawk is owned by Mr. Hawkins and Mr. Borkowski. (Id.) TCG is a Puerto Rico limited liability company, and is not registered as an investment advisor. (Id.) TCG is owned by Mr. Borkowski, Mr. Hawkins, and Mr. Schiff, who is a licensed public accountant (“CPA”). (Id. at 6-7.)
Since 2016, SkiHawk has managed ASI Healthcare Capital Partners I, L.P. (the “Healthcare Fund”), a Delaware limited partnership that invests in health care facilities. (Id. at 57.) Mr. Borkowski, Mr. Hawkins, and Mr. Schiff are partial owners of the Healthcare Fund's general partner, ASI Healthcare Capital Partners GP, LLC. (Id. at 7.)
From 2012 through 2018, SkiHawk managed ASI Capital, LLC (“ASI Capital”), a Wyoming limited liability company that makes equity and debt investments in various companies. (Id. at 5-7.) TCG has managed ASI Capital since 2019. (Id.) Mr. Borkowski and Mr. Hawkins were partial owners of ASI Capital from its formation through 2018. (Id. at 7.) Mr. Schiff was the contract CFO for ASI Capital from 2014 through 2018. (Id. at 7-8.)
From 2015 through 2018, SkiHawk also managed ASI Capital Income Fund, LLC (the “Income Fund”), a Wyoming limited liability company that made bond offerings to individual investors, as well as equity and debt investments in various companies. (Id. at 5-6, 8.) SkiHawk managed the Income Fund through an advisory contract with ASI Capital, the Income Fund's owner. (Id. at 8.) TCG has managed the Income Fund since 2019 through a similar contract. (Id.)
Plaintiff alleges that: (1) SkiHawk, Mr. Borkowski, and Mr. Schiff caused the Healthcare Fund to engage in “conflicted transactions,” and failed to disclose those conflicts of interests; (2) SkiHawk, TCG, Mr. Borkowski, and Mr. Hawkins made false and misleading statements to the Income Fund's investors about UCC-1 filings; and (3) the Defendants breached their fiduciary duties owed to the funds by making false and misleading statements. (Id. at 1-3.)
Based on these allegations, on June 29, 2021, Plaintiff commenced this lawsuit against Defendants, asserting ten causes of action: (1) “Fraud by an Investment Adviser: Section 206(1) of the Advisers Act [15 U.S.C. § 80b-6(1)]” (Against SkiHawk, Mr. Borkowski, and Mr. Hawkins); (2) “Fraud by and Investment Adviser: Section 206(2) of the Advisers Act [15 U.S.C. § 80b-6(2)]” (Against All Defendants); (3) “Aiding and Abetting Fraud by an Investment Adviser Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. § 80b-6(1) & (2)]” (Against Mr. Borkowski and Mr. Hawkins in the alternative); (4) “Fraud on Investor in a Pooled Investment Vehicle: [Section] 206(4) of the Advisers Act [15 U.S.C. § 80b-6(2)] and Rule 206(4)-8 [17 C.F.R. § 275/206(4)-8] Thereunder” (Against All Defendants); (5) “Aiding and Abetting Fraud on Investors in a Pooled Investment Vehicle: Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(2)] and Rule 206(4)-8 [17 C.F.R. § 275/206(4)-8] Thereunder” (Against Mr. Schiff, Mr. Borkowski, and Mr. Hawkins in the alternative); (6) “Fraud (Misstatements and Omissions): Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) [17 C.F.R. § 240.10b-5]” (Against SkiHawk, TCG, Mr. Borkowski, and Mr. Hawkins); (7) “Aiding and Abetting Fraud (Misstatements and Omissions): Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) [17 C.F.R. § 240.10b-5]” (Against Mr. Schiff); (8) “Fraud: Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rules 10b-5(a) and (c) [17 C.F.R. § 240.10b-5(a) and (c)]” (Against All Defendants); (9) “Fraud: Sections 17(a)(1) and (3) of the Securities Act [15 U.S.C. § 77q(a)(1) and (3)]” (Against All Defendants); and (10) “Fraud: Sections 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)(2)]” (Against SkiHawk, TCG, Mr. Borkowski, and Mr. Hawkins). (Id. at 46-53.)
Defendants now move to partially dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 19.) Defendants' arguments are threefold. First, Defendants argue that the second and fourth claims must be dismissed as to TCG and Mr. Schiff, because Plaintiff has not plead plausible claims against TCG and Mr. Schiff for violations of Section 206 of the Investment Advisers Act. (Id. at 5, 7, 8.) Second, Defendants argue that the first, sixth, eighth, and ninth claims must be dismissed as to all Defendants, because Plaintiff has not plead plausible scienter-based claims of securities fraud against any Defendant. (Id. at 8-21.) Third, Defendants argue that the first and second claims must be dismissed as to SkiHawk, Mr. Borkowski, and Mr. Hawkins, because Plaintiff has not plead plausible breach of fiduciary claims against SkiHawk, Mr. Borkowski, and Mr. Hawkins. (Id. at 21.)
Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P 12(b)(6). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (quotation marks omitted).
“A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff.” Hall v. Bellmon, 935 F.2d 1106, 1109 (10th Cir. 1991). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a Rule 12(b)(6) motion to dismiss, means that the plaintiff pleaded facts which allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The Iqbal evaluation requires two prongs of analysis. First, a court identifies “the allegations in the complaint that are not entitled to the assumption of truth,” i.e., those allegations which are legal conclusion, bare assertions, or merely conclusory. Id. at 679-81. Second, a court considers the factual allegations “to determine if they plausibly suggest an entitlement to relief.” Id. at 681. If the allegations state a plausible claim for relief, the claim survives the motion to dismiss. Id. at 679.
That being said, a court need not accept conclusory allegations without supporting factual averments. S. Disposal, Inc., v. Tex. Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). Iqbal, 556 U.S at 678. Moreover, Id. (citation omitted). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.'” Id. (citation omitted).
In evaluating a Rule 12(b)(6) motion to dismiss, a court typically may not look beyond the pleadings. Casanova v Ulibarri, 595 F.3d 1120, 1125 (10th Cir. 2010). “Pleadings,” for purposes of a Rule 12(b)(6) motion to dismiss, however, include attachments to the complaint, documents incorporated into the complaint by reference, and information subject to judicial notice. Tellabs, Inc, 551 U.S. at 322; Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010); Tal v. Hogan, 453 F.3d 1244, 1264 n.24 (...
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