UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Administrative Proceedings Rulings

Release No. 6844 / April 18, 2022

Administrative Proceeding

File No. 3-20801

In the Matter of

DF Growth REIT II, LLC

Order Denying 

Respondent’s Motion to 

Dismiss or for an Order 

Instituting Proceedings

I deny Respondent’s April 13, 2022, motion to dismiss, its alternative 

motion requiring dismissal after a fixed period if an order instituting 

proceedings (OIP) is not issued by the Securities and Exchange Commission, 

its alternative motion for a more definite statement, and its request to vacate 

my April 1 and April 12 scheduling orders. See Resp’t’s Mot. to Dismiss at 1, 

20. Respondent’s requests rest on the erroneous contention that no OIP has 

issued. But, as I have already ruled, the Commission’s March 16 and 31 orders 

satisfy the requirements for an “order instituting proceedings.” 17 C.F.R. 

§§ 201.101(a)(7), .200(a)–(b).

The Commission instituted this proceeding in the manner its regulations 

require. Rule 258 of Regulation A under the Securities Act of 1933 provides 

that the Commission may, at any time, enter an order temporarily suspending 

a Regulation A exemption if it has “reason to believe” that one of six 

enumerated factors are present. 17 C.F.R. § 230.258(a). Upon issuing the 

suspension, the Commission must give notice of the order to the issuer, and 

upon the issuer’s written request within 30 days of the order, must set it for 

hearing. 17 C.F.R. § 230.258(b). This is precisely what the Commission did 

here—it notified Respondent of the temporary suspension on March 16 and 

ordered a hearing on March 31. Respondent asserts that it “has been unable to 

locate a single instance of the Commission instituting proceedings” in this 

manner, Mot. to Dismiss at 10, but an order temporarily suspending an 

exemption followed by an order directing a hearing is precisely the form the 

Commission’s OIP takes in such a case. Med-X, Inc., Admin. Proc. File No. 3-

17551, 2016 SEC LEXIS 3517 (Sept. 16, 2016) (order temporarily suspending 

Regulation A exemption); Med-X, Securities Act Release No. 10235, 2016 SEC 
2

LEXIS 3926 (Oct. 13, 2016) (order directing hearing); Axum, Inc., Securities 

Act Release No. 8654, 2006 SEC LEXIS 146 (Jan. 24, 2006) (order temporarily 

suspending Regulation A exemption); Axum, Inc., Securities Act Release No. 

8662, 2006 SEC LEXIS 396 (Feb. 21, 2006) (order scheduling hearing).

As I explained in my April 12 order, the contents of the Commission’s 

March 16 and 31 orders, taken together, satisfy all the Rules of Practice’s 

requirements for an OIP. See 17 C.F.R. § 201.200(b). Below, I address some of 

Respondent’s specific arguments.

Contrary to Respondent’s claim that the Commission’s March 16 order 

failed to state “the legal authority and jurisdiction giving rise to the matter,” 

Mot. to Dismiss at 10, the Commission made it clear that Rule 258 granted it 

legal authority to issue a temporary suspension of a Regulation A exemption

and further referenced Section 3(b) of the Securities Act, under which the 

Commission had promulgated the regulation. DF Growth REIT II, Securities 

Act Release No. 11040, 2022 SEC LEXIS 671, at *1. Respondent also wrongly 

argues that the Commission failed to confer jurisdiction on me to decide the 

matter. Mot. to Dismiss at 11. In its March 31 order, the Commission expressly 

“ORDERED that this proceeding be set for a hearing before an administrative 

law judge in accordance with Rule 110 of the Commission’s Rule of Practice” 

among other instructions, and referred to the March 16 order to indicate the 

issues of fact and law on which the judge would be expected to rule. DF Growth 

REIT II, Securities Act Release No. 11049, 2022 SEC LEXIS 876, at *1. In 

complying with the Commission’s order, I am acting squarely within my

delegated authority. 

Respondent further argues that it has been deprived of due process. 

Among other things, Respondent claims that the March 16 order “did not 

inform REIT II of a pend[ing] action—it merely afforded them notice of the 

possibility of an action.” Mot. to Dismiss at 13. Yet, the order notified

Respondent of a pending action: the permanent suspension of Respondent’s 

Regulation A exemption if no hearing was requested within 30 days. DF 

Growth REIT II, 2022 SEC LEXIS 671, at *4. Respondent was afforded process 

by being allowed to request, and now participate in, a hearing. Respondent’s 

further assertions regarding due process have been considered and rejected.

Respondent finally argues that the allegations against it in the March 16 

order “fail to provide adequate specificity,” Mot. to Dismiss at 16, which it 

considers to be grounds to dismiss the proceeding, see id. at 10–11, 16, 19. But 

Respondent mistakenly relies on Rule 9(b) of the Federal Rules of Civil 

Procedure, Mot. to Dismiss at 16–18, which provides that “[i]n alleging fraud 

or mistake, a party must state with particularity the circumstances 
3

constituting fraud or mistake.” Fed. R. Civ. P. 9(b). That rule does not apply in 

Commission administrative proceedings.

Moreover, the Commission’s allegations are specific. Its March 16 order

sets forth the bases for a temporary suspension under Rule 258, alleges that 

Respondent failed to comply with two requirements of Regulation A, and 

discusses in detail what it alleges to be materially misleading representations 

concerning the independence of REIT II from REIT I and whether investors 

would be charged management fees. DF Growth REIT II, 2022 SEC LEXIS 671

at *2–4. Respondent’s claim, for example, that the March 16 order needed to 

allege that investors were actually misled or describe how the alleged 

misstatements could be misleading, Mot. to Dismiss at 19, appears to run afoul 

of the Commission’s maxim that “[t]he purpose of the OIP is to provide notice 

of what violations of the securities laws are alleged, not to explain how the 

Division will try to prove those violations.” Am. CryptoFed DAO LLC, 

Securities Exchange Act of 1934 Release No. 93971, 2022 SEC LEXIS 80, at 

*3–4 (Jan. 12, 2022).

For the same reasons, I also reject Respondent’s request for a more 

definite statement. Mot. to Dismiss at 20; see 17 C.F.R. § 201.220(d). The 

March 16 order provides Respondent with sufficient notice to understand the

factual and legal matters at issue and to defend itself “during the course of the 

proceedings.” Am. CryptoFed, 2022 SEC LEXIS 80, at *4, *12. At this stage, 

nothing more is required.

I ORDER that Respondent’s motion to dismiss, or in the alternative, for 

an order instituting proceedings, and all other requests therein, is hereby 

DENIED.1

I FURTHER ORDER that the parties should refrain from referencing any 

settlement activities or offers unless specifically directed.

2

 

/s/ Jason S. Patil

Administrative Law Judge

 

1 Because I have denied Respondent’s motion on the merits, I DENY the 

Division of Enforcement’s motion to strike.

2 See Mot. to Dismiss at 3.