UNITED STATES DISTRICT COURT

DISTRICT OF OREGON

PORTLAND DIVISION

LAWRENCE P. CIUFFITELLI, for himself Case No. 3:16-cv-580-AC

and as Trustee of CIUFFITELLI REVOCABLE

TRUST; GREG and ANGELA JULIEN; FINDINGS AND

JAMES and SUSAN MACDONALD, as Co- RECOMMENDATION

Trustees of the MACDONALD FAMILY

TRUST; R.F. MACDONALD CO.; ANDREW

NOWAK, for himself and as Trustee of the 

ANDREW NOWAK REVOCABLE LIVING

TRUST U/A 2/20/2002; WILLIAM

RAMSTEIN; and GREG WARRICK, for

himself and, with SUSAN WARRICK, as CoTrustees of the WARRICK FAMILY TRUST,

individually and on behalf of all others 

similarly situated,

Plaintiffs,

v. 

DELOITTE & TOUCHE LLP, 

EISNERAMPER LLP; SIDLEY AUSTIN 

LLP; TONKON TORP LLP; TD 

AMERITRADE, INC.; and INTEGRITY 

BANK & TRUST,

Defendants. 

_______________________________________

ACOSTA, Magistrate Judge:

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Introduction

Plaintiffs Lawrence P. Ciuffitelli and others (collectively, “Plaintiffs”) bring this action

against Defendants Deloitte & Touche LLP (“Deloitte”); EisnerAmper LLP (“EisnerAmper”);

Sidley Austin LLP (“Sidley”); Tonkon Torp LLP (“Tonkon”); TD Ameritrade, Inc.

(“Ameritrade”); and Integrity Bank & Trust (“Integrity”) (collectively, “Defendants”). Plaintiffs

allege multiple violations of the Oregon Securities Law, stemming from the sale of securities

issued by “Aequitas,” a group of related investment and private equity entities. The Aequitas

group of companies, which are not a party to this action, entered receivership in early 2016. A

civil enforcement action, Securities and Exchange Commission v. Aequitas Management, LLC et

al., case number 3:16-cv-0438-PK (“SEC Lawsuit”), is currently pending before Judge Papak. 

Presently before the court is a joint motion to dismiss Plaintiffs’ First Amended

Complaint (“FAC”), filed by Deloitte, EisnerAmper, Sidley, and Tonkon. Also before the court

are motions to dismiss the FAC filed individually by Deloitte, EisnerAmper, Sidley, Tonkon,

Ameritrade, and Integrity. Joint Movants additionally move for judicial notice of some offering

documents for the securities at issue, engagement letters between Aequitas companies and

Deloitte, and some regulatory filings made by Aequitas companies.

Summary of Decision

The court should grant in part and deny in part Defendants’ Motions to Dismiss. 

Plaintiffs insufficiently allege the Aequitas entities’ primary violations of the Oregon Securities

Law. Rule 9(b) requires Plaintiffs to allege the Aequitas entities’ misrepresentations and

material omissions with particularity. Plaintiffs’ remaining allegations against the Aequitas

entities and the Defendants are subject to Rule 8. Accordingly, the court should grant the

motions to dismiss as follows: The court should dismiss the allegations in the FAC that do not

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differentiate between the Aequitas entities and the securities they sold. The court should also

dismiss the allegations of misrepresentations and material omissions that do not state when and

where the misleading statements occurred, or that misrepresentations were false when made. 

Additionally, the court should dismiss alleged material omissions where Plaintiffs do not identify

an affirmative statement made false by the omission.

The court should deny Defendants’ motions to dismiss based on construction of the

Oregon Securities Law. Plaintiffs need not plead receipt of misleading communications if the

security purchased was part of a series or group of transactions effected by means of misleading

communications. The Oregon Securities Law creates “participation and material aid” liability

for non-sellers whose interactions with a seller have a causal, material relationship with an

unlawful securities transaction. Plaintiffs adequately allege that Deloitte, EisnerAmper, Tonkon,

Sidley, Integrity, and Ameritrade participated in or materially aided some securities transactions

by Aequitas entities.

The court should grant Plaintiffs leave to file another amended complaint because the

defects of the FAC could be cured by additional factual allegations.

Factual Background

The 51-page FAC lays out a complex series of allegations, centered on the securities

business of the Aequitas group of companies. Not all of the allegations are relevant to the

pending motions. Still, significant background facts are necessary to resolve the pending

motions. The following facts are alleged in the complaint and, for the purposes of the pending

motions to dismiss, the allegations in the complaint are taken as true and construed in the light

most favorable to Plaintiffs. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 989 (9th

Cir. 2009).

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I. Parties.

The complaint contains allegations relating to three principal groups: the Aequitas

group, Plaintiffs, and Defendants.

A. The Aequitas Group.

The Aequitas group of entities is a group of approximately 75 affiliated limited liability

companies, partnerships, and corporations. (First Am. Compl. (“FAC”) (ECF No. 57), ¶ 21.) 

The complaint refers to the group of companies collectively as “Aequitas.” (E.g., id. ¶¶ 1–4.) 

This Findings and Recommendation will refer to the entire group of affiliated entities as “the

Aequitas group,” and to unspecified groups of affiliated entities as “the Aequitas entities.” A

complex series of loans, ownership interests, management agreements, and other relationships

connected the Aequitas group. (E.g., id. ¶¶ 21–25, 29, 169–75.)

Aequitas Management, LLC (“Management”) is the parent entity of the Aequitas group. 

(Id. ¶ 22.) Management holds an 84% ownership stake in Aequitas Holdings, LLC (“Holdings”). 

(Id.) Holdings is the sole owner and member of Aequitas Commercial Finance, LLC (“ACF”)

and sole shareholder of Aequitas Capital Management, Inc. (“ACM”). Id. ACM wholly owns

Aequitas Investment Management, LLC (“AIM”). (Id. ¶ 25.) Management, Holdings, ACM,

and AIM (“the Control Entities”) owned and managed the subordinate Aequitas entities. (Id.

¶¶ 21–25.)

Principally, the Aequitas group raised funds by selling securities through ACF. (FAC

¶ 27.) Additional Aequitas subordinate entities sold securities mentioned in the complaint:

MotoLease Financial, LLC (“MotoLease”); Aequitas Income Protection Fund, LLC (“AIPF”);

Aequitas Income Opportunity Fund, LLC (“AIOF”); Aequitas Income Opportunity Fund II, LLC

(“AIOF II”); Aequitas Capital Opportunities Fund, LP (“ACOF”); and Aequitas Enhanced

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Income Fund, LLC (“AEIF”) (collectively, “the Funds”). (Id. ¶ 28.) ACF owned all or part of

the Funds. (Id. ¶ 23.)

B. Plaintiffs.

Plaintiffs are investors who purchased securities from ACF or the Funds. (FAC ¶¶ 8–14;

64–70.) With the exception of AEIF, ACF and the funds each sold securities to at least one

named plaintiff. (Id. ¶¶ 64–70.) Which plaintiff purchased which securities is not relevant to the

pending motions because Plaintiffs sue in a representative capacity. In some cases, the issuing

entities induced Plaintiffs to extend the maturity date of a purchased security or reinvest the

proceeds of a security after redemption. (E.g. id. ¶¶ 67(c), 68(a).) Plaintiffs seek to represent a

class of all investors who purchased securities from the Aequitas group on or after June 29,

2011. (Id. ¶ 181.)

C. Defendants.

Deloitte, an accounting firm, performed accounting and auditing services for Aequitas

entities in 2013 and 2014. (FAC ¶ 15.) EisnerAmper, an accounting firm, performed accounting

and auditing services for Aequitas entities in 2011 and 2012. (Id. ¶ 16.) Sidley is an

international business law firm. (Id. ¶ 17.) Sidley provided legal advice to Aequitas entities

regarding sales of securities and prepared legal documents necessary to sell securities through

ACOF and other Aequitas entities. (Id. ¶¶ 17; 30(d).) Tonkon, an Oregon law firm, prepared

legal documents necessary to sell securities through multiple Aequitas entities. (Id. ¶ 18.) 

Ameritrade, a corporation, served as custodian for unspecified Aequitas securities and referred

investors to financial advisors to buy unspecified Aequitas securities. (Id.¶ 19.) Integrity, a

commercial bank, served as custodian for unspecified Aequitas securities and solicited sales of

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unspecified Aequitas securities. (Id. ¶ 20.) The specific interactions of each defendant with

specific Aequitas entities are detailed below.

A. Structure and Organization.

The Aequitas group used a complex system of ownership interests, financial transactions,

management agreements, and other relationships to connect the myriad Aequitas entities. (FAC

¶¶ 21–25.) Plaintiffs, giving some examples, allege that there were minimal operational

distinctions between the nominally separate entities. (Id. ¶¶ 29, 103–08.) The intra-Aequitas

transactions meant the proceeds of securities sold by individual entities were used to fund the

operations of the Aequitas group, regardless of the individual entity’s stated purpose. (Id. ¶ 29.) 

Conversely, the success or failure of ACF and the Funds depended on the financial wellbeing of

the Aequitas group. (Id.)

B. Business Activities.

The Aequitas group engaged in diverse business activities, including purchasing

consumer debt from multiple industries. (FAC ¶¶ 2, 104, 110, 117, 126.) A group of Aequitas

subsidiaries, owned by ACF, purchased student loans from Corinthian Colleges, Inc.

(“Corinthian”). (Id. ¶¶ 146–60.) Another group of Aequitas subsidiaries purchased vehicle

leases, through ACF and Motolease. (Id. ¶¶ 125–29.) Other Aequitas subsidiaries purchased

healthcare receivables and debt-consolidation loans. (Id. ¶¶ 104, 117.) 

C. Finances.

The Aequitas group raised capital in part by selling securities. (FAC ¶ 26.) The group

also obtained third-party financing from lenders. (Id. ¶¶ 107, 119, 130.) ACF, the Funds, and

subsidiary Aequitas affiliates often paid management fees to ACM, which ran some of the dayPage 6 – FINDINGS AND RECOMMENDATION [TJP]

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to-day operations of other Aequitas entities. (E.g. id. ¶¶ 103, 108.) ACF also loaned tens of

millions of dollars to Holdings and other Aequitas entities. (Id. ¶ 170.)

D. Securities.

The Aequitas entities sold securities — promissory notes and interests in Aequitas

entities — as a fundraising method. (FAC ¶ 26.) The securities at issue in this case were not

registered under Oregon or Federal law. (Id.) The primary fundraising mechanism for the

Aequitas entities was ACF’s sale of Secured Subordinated Promissory Notes (“ACF Notes”). 

(Id.¶ 27.) Other Aequitas entities sold separate securities, including: Limited Liability

Company Interests, sold by AIPF (“AIPF Interests”); Senior Secured Promissory Notes, sold by

AIOF (“AIOF Notes”); Senior Secured Promissory Notes, sold by AIOF-II (“AIOF-II Notes”);

Senior Secured Promissory Notes, sold by MotoLease (“MotoLease Notes”); LLC Interests, sold

by AEIF (“AEIF Interests”); and Capital Commitments, sold by ACOF (“ACOF Interests”)

(collectively with the ACF Notes, “the Disputed Securities”). (Id. ¶ 28.) The Funds represented

that the other Disputed Securities were distinct from the ACF Notes, concealing the complex

financial interdependence between the ACF, the Funds, and other Aequitas entities. (Id. ¶ 29.) 

The FAC alleges the Disputed Securities were essentially the same security because of the intraAequitas financial dealings. (Id.)

The Funds sold the Securities using Private Placement Memoranda (“PPM”), where the

seller described to potential investors its business operations, assets, and risks. (FAC ¶¶ 32, 39,

51, 45, 57, 61.) Each of the PPMs contained a directory, listing the manager, auditor, legal

counsel, and other partners of the issuing entities. Investors purchased securities by completing

subscription agreements. (Id. ¶¶ 32, 39, 45, 51, 57, 61.)

/ / / / /

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III. Defendants’ Involvement with the Aequitas Group.

Plaintiffs’ claims against Defendants arise from Defendants’ transactions with the

Aequitas group. Each defendant interacted with one or more Aequitas entity. Plaintiffs allege

Defendants provided services or engaged in transactions that enabled the Aequitas entities to sell

the Disputed Securities to investors. (FAC ¶ 30.) The services each defendant provided were

necessary to the sale of the securities or the Aequitas group’s ongoing securities business. (Id.

¶¶ 15–20, 30.) In several PPMs, the Aequitas entities identified EisnerAmper, Deloitte, Tonkon,

and/or Sidley as auditor or counsel to the entities, depending on the time of issue. (Id. ¶¶ 15, 33,

34, 41, 42, 47, 48, 53, 58, 63.) The “directory” section identifying EisnerAmper, Deloitte,

Tonkon, and/or Sidley appeared in the first pages of each PPM, before any information about the

issuing entity or the offered security. (Decl. of Gavin M. Masuda (“Masuda Decl.”) (ECF No.

79), Exs. 13 at v, 14 at vii, 15 at iv–v; Decl. of Philip Van Der Weele (“Van der Weele Decl.”)

(ECF No. 76), Exs. 2 at v, 3 at v.)

A. EisnerAmper & Deloitte.

The allegations against EisnerAmper and Deloitte are similar, as the firms had

comparable functions during different time periods. EisnerAmper was the auditor for ACF,

AIPF, and AIOF in 2011 and 2012. (FAC ¶¶ 30(a), 33, 41, 47.) Deloitte was the auditor for

ACF, AIPF, AIOF, AIOF II, AIEF, and ACOF in 2013 and 2014. (Id. ¶¶ 30(b), 34, 42, 48, 53,

58, 63.) During the years when each firm audited ACF, Deloitte and EisnerAmper audited the

financial statements of myriad subordinate Aequitas entities as part of the consolidated

statements of ACF. (Id. ¶ 30(a–b).) ACF, AIPF, and AIOF provided financial documents

audited by EisnerAmper and Deloitte to prospective investors. (Id. ¶¶ 30(a), 33–34, 41–42,

47–48, 53, 58, 63.) With EisnerAmper’s knowledge and consent, ACF, AIPF, and AIOF issued

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some PPMs identifying EisnerAmper as their auditor. (Id. ¶¶ 15, 33, 41, 47.) With Deloitte’s

knowledge and consent, ACF, AIPF, AIOF, AIOF II, AIEF, and ACOF issued PPMs identifying

Deloitte as their auditor. (Id. ¶¶ 15, 34, 42, 48, 53, 58, 63.) Other promotional materials sent to

current and prospective investors in ACF, AIPF, and AIOF identified EisnerAmper as their

auditor. (Id. ¶¶ 35, 43, 49.) Similarly, promotional materials sent to current and prospective

investors in ACF, AIPF, AIOF, AIOF II, and ACOF identified Deloitte as their auditor. (Id.

¶¶ 35, 43, 49, 54, 59).

The financial statements that EisnerAmper and Deloitte audited helped conceal the

financial interdependence, the integrated nature of the Aequitas group, and the growing

insolvency of the Aequitas group over time. (Id. ¶¶ 15–16, 161–174.)

B. Tonkon.

Tonkon was legal counsel for multiple Aequitas entities, including ACF, AIOF, AIOF-II,

AIPF, AEIF, ACOF, Motolease, and AIM. (FAC ¶¶ 15, 30(c).) Tonkon prepared documents

necessary for ACF and the Funds to sell securities. (Id. ¶¶ 15, 30(c), 32, 39, 45, 51, 61.) Tonkon

drafted or helped draft the PPMs and subscription agreements for all of the Disputed Securities,

except for ACOF Interests. (Id.) As with the accounting firms, promotional materials sent to

current and prospective investors in ACF, AIPF, AIOF, and AIOF II identified Tonkon as

counsel to the issuers. (Id. ¶¶ 35, 43, 49, 54.) Tonkon also advised AIM in its capacity as

investment advisor and manager of multiple Aequitas entities. (Id. ¶ 30(c).)

C. Sidley.

Sidley was legal counsel to ACOF, AIM, and other unspecified Aequitas entities. (FAC

¶¶ 17, 30(d), 40, 46, 52, 57, 62.) Sidley prepared documents necessary for ACOF to sell

securities, including drafting the PPM and subscription agreements for the ACOF Interests. (Id.

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¶¶ 30(d), 57.) Some promotional materials sent to current and prospective investors in ACOF

identified Sidley as counsel to ACOF. (Id. ¶ 59.) As counsel to AIM, Sidley had indirect

involvement with the operations of AIM-managed Aequitas subsidiaries, including AIPF, AIOF,

AIOF-II, ACOF, and AEIF. (Id. ¶¶ 30(d), 40, 46, 52, 62.) Sidley enabled an unspecified

Aequitas entity to pledge its healthcare receivables as collateral to secure $100 million in

financing, removing those assets from investors. (Id. ¶ 30(d).)

D. Integrity.

Integrity offered and solicited sales of ACF Notes and AIOF-II Notes to prospective

investors. (FAC ¶¶ 30(f), 36, 55.) Integrity prepared subscription agreements and other

documents necessary to complete sales of ACF Notes and AIOF-II Notes. (Id.) Integrity is the

custodian of some Disputed Securities. (Id.)

E. Ameritrade.

Ameritrade referred investors to third-party financial advisors to purchase unspecified

securities from Aequitas subsidiaries. (FAC ¶ 30(e).) Ameritrade was also the custodian for

some unspecified Aequitas Securities. (Id.)

III. Misrepresentations and Material Omissions.

The allegations of the Aequitas group’s misconduct spans over 100 paragraphs of the

FAC. (FAC ¶¶ 71–175.) Accordingly, the facts restated here will not repeat every allegation

against the Aequitas group. Instead, the following allegations reflect the general actions and

events giving rise to the lawsuit. The FAC refers generally to “Aequitas” in many allegations,

without specifying which Aequitas entity engaged in specific conduct. The following facts refer

to specific Aequitas entities, where possible.

/ / / / /

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A. Problems with Specific Aequitas Investments.

An ACF subsidiary, ASFG, LLC (“ASFG”), had a lucrative student-loan origination

agreement with Corinthian. (FAC ¶ 146.) ASFG purchased student loans from Corinthian at a

net discount, with a recourse agreement requiring Corinthian to buy back any loans in default. 

(Id.) So long as Corinthian met its obligations under the recourse agreement, ASFG collected on

loans at a profit and sold any past-due loans back to Corinthian. (Id. ¶ 147.) Corinthian began to

face increasing public relations problems and regulatory scrutiny, beginning in 2010 and

increasing afterwards. (Id. ¶ 115.) Corinthian’s demise became increasingly apparent in late

2013. (Id. ¶¶ 115(h), 155.) ASFG terminated its relationship with Corinthian in early 2014. (Id.

¶ 155.) Corinthian ceased its operations in 2014, while facing a civil-enforcement action from

the Consumer Financial Protection Bureau. (Id. ¶ 116.) Corinthian declared bankruptcy in

2015, increasing default rates on the loans and eliminating any remedy ASFG might have had

against Corinthian. (Id. ¶ 160.) The Aequitas group did not disclose any of the preceding

information about the investment in Corinthian, including Corinthian’s identity, the Aequitas

group’s exposure to financial harm as Corinthian declined, and the adverse events occurring to

Corinthian. (Id. ¶¶ 109–16.)

Besides the Corinthian portfolio, other Aequitas investments faced challenges. ACF and

other Aequitas entities invested in consumer-credit receivables (“the Consumer Receivables”),

claiming the receivables as valuable assets. (FAC ¶¶ 117, 123–24.) ACF and other Aequitas

entities pledged all or most of the Consumer Receivables as collateral for third-party loans. (Id.

¶ 120.) The Consumer Receivables portfolio consisted of sub-prime consumer loans, and had a

high failure rate. (Id. ¶¶ 117, 121.) The failure rate of the Consumer Receivables portfolio

exceeded the assumptions of the third-party lenders, making the portfolio a futile investment. 

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(Id. ¶ 121.) ACF and other Aequitas entities defaulted on the third-party financing obligations

underlying the Consumer Receivables in 2015. (Id.) The Aequitas group did not disclose any of

the preceding information about the Consumer Receivables to investors. (Id. ¶¶ 117–24.)

B. Financial Engineering and Use of Invested Assets.

The Aequitas group used complex financial engineering to embellish its financial wellbeing to investors. (FAC ¶¶ 104–106, 110–112, 161–75.) Intra-Aequitas loans eliminated the

functional distinctions between nominally separate entities. (Id. ¶ 29.) The intra-Aequitas

transactions funneled money from the Funds to ACF, rendering the Funds wholly dependent on

the fate of ACF and the Aequitas group. (Id. ¶¶ 29, 167, 173.) Functionally, there was no

difference between investing in ACF and the Funds. (Id. ¶ 29.) ACF also loaned substantial

amounts to Holdings, to fund the operational expenses of the Control Group. (Id. ¶¶ 169–74.) 

In communications to investors regarding the ACF Notes, ACF represented that the

collateral supporting the ACF Notes exceeded the total owed on the ACF Notes. (FAC ¶ 161.) 

But ACF’s statements regarding its collateral overstated the value of its assets, particularly assets

derived from intra-Aequitas transactions. (Id. ¶¶ 161, 166.) ACF reported its loan to Holdings

as a valuable asset, without reflecting Holding’s lack of collateral and inability to repay the loan. 

(Id. ¶ 173.) ACF and the Funds also claimed ownership interests in fellow Aequitas entities as

valuable assets, regardless of the actual value of the ownership interests. (Id. ¶¶ 166–68.) ACF

and the Funds did not disclose the intra-Aequitas transactions and misrepresented the intraAequitas transactions to investors. (Id. ¶¶ 161–68.) The Aequitas group also reported some

illusory ownership interests in Aequitas subordinates as valuable assets in 2013 and 2014. (Id.

¶ 167.)

/ / / / /

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C. Use of Invested Assets.

The promotional materials for the Funds misrepresented the use of invested assets,

describing varied investment strategies unique to each Fund and omitting the use of the Funds’

assets as a source of cash for ACF. (FAC ¶¶ 136–42.) ACF and the Funds also used assets to

fund bonuses, large salaries, private aircraft, and company parties for the Aequitas group and its

employees, a use not disclosed to investors. (Id. ¶¶ 144, 171.) ACF and the Funds paid millions

of dollars annually to ACM and other Aequitas entities in management fees, without disclosing

the amount or recipient of the management fees to investors. (Id. ¶ 175.) As the Aequitas

group’s financial health deteriorated, ACF and the Funds began to use newly invested money to

repay earlier investors. (Id. ¶¶ 136, 141.) The materials distributed to prospective investors

either did not disclose the use of new investments to repay previous investors or described such

uses as infrequent. (Id. ¶¶ 137–142.) Only in December 2015 did ACF disclose its use of newly

invested assets to repay prior investors. (Id. ¶ 143.)

D. Insolvency.

The Aequitas group became insolvent, although the complaint does not specify when

insolvency occurred. (FAC ¶ 169.) The Aequitas group used intra-Aequitas loans to conceal its

insolvency, using new investments to fund through ACM the operating expenses of the Aequitas

group. (Id. ¶¶ 169, 171.) The outstanding balance of the largest intra-Aequitas loan — from

ACF to Holdings — grew from $62.7 million in 2012 to $180.3 million at the end of 2015. (Id.

¶ 170.) The Aequitas group received collateral analyses indicating the balance of the

ACF–Holdings loan exceeded Holding’s ability to collateralize the debt, as early as 2014. (Id.

¶ 173.) The Aequitas group did not disclose these collateral analyses to investors. (Id.) 

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Throughout the period of insolvency, the Aequitas group continued to sell securities,

increasingly using the proceeds of the sales to repay previous investors. (Id. ¶¶ 136, 141.) 

In February 2016, the Aequitas entities publically declared their insolvency to investors

and turned operations over to an outside consultant. (FAC ¶¶ 176–78.) The Securities and

Exchange Commission (“SEC”) filed suit in March 2016 against Management, Holdings, ACF,

ACM, and several top executives. (Id. ¶ 179.) The SEC and Aequitas entities asked the court to

appoint a receiver in the course of the SEC Lawsuit against the Aequitas entities. (Id. ¶ 180.)

Standards

I. Federal Rule of Civil Procedure 8.

Federal Rule of Civil Procedure (“Rule”) 8 requires that complaints in federal court

consist of “a short and plain statement of the claim showing that the pleader is entitled to relief.”

Pleadings need not contain detailed factual allegations, but “labels and conclusions, and a

formulaic recitation of the elements of a cause of action will not do[.]” Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 555 (2007). However, a claim “may proceed even if it strikes a savvy

judge that actual proof of [necessary] facts is improbable,” and the plaintiff is unlikely to

succeed on the merits. Id. at 556.

On a motion to dismiss for failure to state a claim, the court may consider only the

pleadings themselves, exhibits that are physically attached to the complaint, and matters of

which the court may take judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir.

2007) (per curiam). The court generally must “accept all allegations in the complaint are true

and draw all reasonable inferences in favor of the nonmoving party.” Dahlia v. Rodriguez, 753

F.3d 1060, 1066 (9th Cir. 2013) (quoting TwoRivers v. Lewis, 174 F.3d 987, 991 (9th Cir.

1999)). The court is not bound to accept as true allegations contradicted by “matters properly

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subject to judicial notice or by exhibit[s]” attached to the complaint. Sprewell v. Golden State

Warriors, 266 F.3d 979, 988 (9th Cir. 2001), amended on denial of reh’g 275 F.3d 1187. Legal

conclusions in a complaint are not entitled to a presumption of truth. Ashcroft v. Iqbal, 556 U.S.

662, 679 (2009).

II. Federal Rule of Civil Procedure 9(b).

Under Rule 9(b), parties must plead fraud, claims sounding in fraud, and allegations of

fraudulent conduct with specificity, alleging the “who, what, when, where, and how of the

misconduct charged.” Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir.

2011). Where a claim sounds in fraud, plaintiffs must plead the entire claim with particularity. 

Vess v. Ciba-Geigy Corp., USA, 317 F.3d 1097, 1104–05 (9th Cir. 2003). A claim sounds in

fraud where a plaintiff “allege[s] a unified course of fraudulent conduct and rel[ies] entirely on

that course of conduct as the basis of a claim.” Id. In a claim based on fraudulent and nonfraudulent conduct, Rule 9(b) applies only to the allegations of fraudulent conduct. Id. at 1104.

Rule 9(b) also furthers three policy interests:

(1) to provide defendants with adequate notice to allow them to defend the charge

and deter plaintiffs from the filing of complaints “as a pretext for the discovery of

unknown wrongs”; (2) to protect those whose reputation would be harmed as a

result of being subject to fraud charges; and (3) to “prohibit [ ] plaintiff[s] from

unilaterally imposing upon the court, the parties and society enormous social and

economic costs absent some factual basis.”

Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (quoting In re Stac Elecs. Sec.

Litig., 89 F.3d 1399, 1405 (9th Cir. 1996)).

III. Motion for Judicial Notice.

Federal Rule of Evidence 201 allows the court to take judicial notice of facts (1) that are

generally known within the court's jurisdiction; or “(2) can be accurately and readily determined

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from sources whose accuracy cannot reasonably be questioned.” FED. R. EVID. 201(b). Courts

“may take judicial notice of undisputed matters of public record . . . including documents on file

in federal or state courts.” Harris v. County of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012).

Analysis

No Aequitas entity is a party to this lawsuit. Nonetheless, the conduct of Aequitas

entities is at the core of the allegations in the complaint. Plaintiffs claim the Aequitas entities

sold securities in violation of the Oregon Securities Law, ORS §§ 59.005–59.451. Defendants’

alleged liability depends on the Aequitas group’s predicate violations of the Oregon Securities

Law. See OR. REV. STAT. § 59.115(3) (creating derivative liability for third-parties based on

participation or material aid in unlawful securities transactions). Defendants contest the legal

and factual sufficiency of the allegations of primary violations of the Oregon Securities Law by

the Aequitas entities, as well as the allegations of participation or material aid by Defendants.

I. The Oregon Securities Law.

Plaintiffs’ claims all arise under the Oregon Securities Law, ORS 59.005 et seq. Some

initial discussion of the structure of the Oregon Securities Law is therefore necessary. Oregon

courts interpret the Oregon Securities Law liberally “to afford the greatest possible protection to

the public.” Foelker v. Kwalke, 279 Or. 379, 385 (1977) (internal quotation marks and citation

omitted). The Oregon Securities Law allows private actions for direct buyer-to-seller

transactions under ORS 59.115. State v. Marsh & McLennan Cos., 353 Or. 1, 8–9 (2012). Both

sellers and non-sellers of securities may be liable to purchasers under section 115 for the

purchase price of unlawfully sold securities. The relevant portion of the statute provides:

(1) A person who sells a security is liable . . . to a purchaser of the security if the

person:

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(a) Sells a security in violation of the Oregon Securities Law or of any condition,

limitation or restriction imposed upon a registration or license under the Oregon

Securities Law; or

(b) Sells a security in violation of ORS 59.135 (1) or (3) by means of an untrue

statement of a material fact or an omission to state a material fact necessary in

order to make the statements made, in light of the circumstances under which

they are made, not misleading (the buyer not knowing of the untruth or omission),

and who does not sustain the burden of proof that the person did not know, and in

the exercise of reasonable care could not have known, of the untruth or omission.

. . .

(3) . . . every person who participates or materially aids in the sale is also liable

jointly and severally with and to the same extent as the seller, unless the nonseller

sustains the burden of proof that the nonseller did not know, and, in the exercise

of reasonable care, could not have known, of the existence of facts on which the

liability is based. Any person held liable under this section shall be entitled to

contribution from those jointly and severally liable with that person.

OR. REV. STAT. § 59.115.

Plaintiffs allege the Aequitas entities violated three provisions of Oregon securities law

in selling the Disputed Securities. First, Plaintiffs claim the Disputed Securities were sold

without registration, in violation of ORS § 59.055. Plaintiffs also allege the Aequitas entities

made material misrepresentations and omissions in selling the Disputed Securities, violating

both ORS § 59.115(1)(b) and ORS § 59.135(2). Plaintiffs assert causes of action for violations

of ORS § 59.055 and § 59.135(2) under ORS § 59.115(1)(a), which creates a cause of action for

any sale made “in violation of the Oregon Securities Law.” Plaintiffs then allege Defendants

bear secondary liability for “participat[ing] or materially aid[ing] in” the Aequitas group’s

unlawful sales of securities. OR. REV. STAT. § 59.115(3).

A. ORS § 59.055.

Courts often describe ORS § 59.055 as a prohibition on the sale of unregistered

securities. See, e.g., State v. Ghim, 360 Or. 425, 441 (2016) (“[T]he legislature has prohibited

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the sale of unregistered securities in Oregon, ORS 59.055”). Textually, ORS § 59.055 forbids

sale or offering of any security in Oregon unless one of three conditions exists. First, a security

may be sold if it is registered. OR. REV. STAT. § 59.055(1). The second condition depends on

specific exempt transactions identified in ORS § 59.025 and § 59.035. OR. REV. STAT.

§ 59.055(2). Third, sales are allowed if the security is a “federal covered security,” defined by

reference to the federal Securities Act. OR. REV. STAT. § 59.055(3). Under federal law, federal

covered securities include “transactions by an issuer not involving any public offering.” 15

U.S.C. §§ 77d(2)(a), 77r(b). The U.S. Securities and Exchange Commission (“SEC”) further

defines “transactions by an issuer not involved in any public offering” by regulation. SEC

Regulation D, 17 C.F.R. §§ 230.500–230.508, defines specific non-public offerings that qualify

as federal covered securities.

B. ORS §§ 59.115(1)(b), 59.135(2).

Two provisions of the Oregon Securities Law forbid similar conduct in selling securities:

making an “untrue statement of material fact or an omission to state a material fact necessary in

order to make the statements made, in light of the circumstances under which they are made, not

misleading.” OR. REV. STAT. §§ 59.115(1)(b); 59.135(2). The statutes differ in the required

connection between the misstatement or omission and the sale of securities. Under ORS

§ 59.115(1)(b), a violation occurs when “a person sells or successfully solicits the sale of a

security . . . by means of” a material false statement or omission. Id. § 59.115(1)(b). ORS

§ 59.135(2) applies more broadly, applying to material misstatements or omissions made

“directly or indirectly, in connection with the purchase or sale of any security or the conduct of a

securities business.” Id. § 59.135(2).

/ / / / /

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C. ORS § 59.115(3).

Non-sellers who participate or materially aid in an unlawful securities sale are jointly and

severally liable to the purchasers. OR. REV. STAT. § 59.115(3). A purchaser seeking recovery

from a non-seller must first allege a primary violation by a seller. Comp. Concepts, Inc. v.

Brandt, 137 Or. App. 572, 587 (1995) (“[L]iability under ORS 59.115(3) is dependent on and

derivative from the liability of a seller.”). Under ORS § 59.115(3), “‘[p]articipate’ and

‘materially aid’ are separate concepts, not synonyms.” Prince v. Brydon, 307 Or. 146, 149

(1988). Generally, participation addresses direct involvement in the sale, while material aid

involves indirect support for the seller in making the sale. Id. at 150 (drafting partnership

documents and providing legal advice regarding private securities offering was material aid);

Adams v. Am. W. Secs., Inc., 265 Or. 514, 527 (1973) (preparing sales documents for use in

transaction was participation); Ainslie v. Spolyar, 144 Or. App. 134, 145 (1996) (“Ainslie I”)

(preventing a foreclosure and providing legal services prior to an offering was material aid). 

Still, other decisions use the terms together (“participate or materially aid”), without distinction. 

See, e.g., Fakhrdai v. Mason, 72 Or. App. 681, 684 (1985); Ainslie v. First Interstate Bank of

Or., N.A., 148 Or. App. 162, 184–85 (1997) (“Ainslie II”).

II. Applicable Pleading Standards.

The parties dispute whether Rule 9(b) requires Plaintiffs to plead with specificity

allegations of primary violations of the Oregon Securities Law and participation or material aid

in an unlawful sale of securities. Defendants argue all of Plaintiffs’ claims sound in fraud and

thus must be pleaded with particularity. Plaintiffs concede claims under ORS 59.135(2) sound

in fraud, but otherwise contend their claims are subject only to Rule 8. (Opp. To Jt. Mot. (ECF

No. 119), at 11.)

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As a threshold matter, Defendants argue Rule 9(b) applies to the entire case because

actions under ORS § 59.115 are statutory fraud actions. See Karsun v. Kelley, 258 Or. 155, 167

(1971) (“the basis for [an action under ORS 59.115] is fraud”). Plaintiffs contend Rule 9(b)

applies only to allegations of fraudulent conduct because the FAC alleges both fraudulent and

non-fraudulent conduct. See Vess, 317 F.3d at 1104. The specificity requirements of Rule 9(b)

may apply to entire claims for relief, or to individual factual allegations. Id. at 1104–05. Here,

Plaintiffs allege three claims for relief: one for sales of unregistered securities and two for sales

of securities through misrepresentation or material omission. (FAC ¶¶ 191–93.) All claims

assert Defendants’ secondary liability based on primary violations of the Oregon Securities Law

by the Aequitas group. (Id. ¶ 190.) Accordingly, the court must first determine whether any or

all of the claims sound in fraud, such that allegations against both the Aequitas group and

Defendants must be pleaded with particularity.

A. All Allegations and Claims.

Defendants first argue the entirety of the complaint sounds in fraud because Plaintiffs’

claims arise under ORS § 59.115. Courts have characterized actions under ORS § 59.115 and

ORS § 59.135 as “statutory ‘fraud’ actions.” E.g., Aero Marine Engine, Inc. v. Transporter, Inc.,

No. 05-1469, 2006 WL 3128500, at *3 n.2 (D. Or. Oct. 23, 2007) (quotation marks omitted). 

Because Plaintiffs bring claims under ORS § 59.115, Defendants conclude Rule 9(b) applies to

all of Plaintiffs’ allegations. Plaintiffs respond that cases referring to actions under ORS

§ 59.115 as “fraud” actions did not address pleading standards, and they identify multiple

aspects of their claims that do not allege fraudulent conduct. Instead, Plaintiffs suggest the court

should apply Rule 9(b) to this case on an allegation-by-allegation basis. See Vess, 317 F.3d at

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1104 (where a plaintiff alleges “some fraudulent and some non-fraudulent conduct . . . only the

allegations of fraud are subject to Rule 9(b)’s heightened pleading requirements.”).

Two Ninth Circuit cases are instructive on this issue. In Vess, the court analyzed a series

of allegations against a pharmaceutical company, the American Psychological Association, and

an advocacy group, arising out of each defendant’s role in promoting sales of Ritalin, a

prescription drug. Vess, 317 F.3d at 1100–01. In that case, the complaint alleged some

allegations of a fraudulent conspiracy among all defendants, and other allegations of nonconspiratorial, non-fraudulent failures to disclose information and warn consumers. Id. at

1105–06. The court held that the complaint alleged a combination of fraudulent and nonfraudulent conduct, and applied Rule 9(b) only to the allegations of fraudulent conduct. Id. The

court also held that Rule 9(b) applied to all of the allegations of a fraudulent conspiracy because

they asserted “a unified course of fraudulent conduct.” Id. at 1107–08. In contrast, Kearns

addressed claims against a single car manufacturer, alleging misrepresentations regarding a

used-car certification program. Kearns, 567 F.3d at 1125–26. The court concluded all of the

claims were state-law fraud claims under California law, and applied Rule 9(b) to the complaint

as a whole. Id. at 1126–27.

Thus, the entirety of a complaint is subject to Rule 9(b) if it exclusively alleges claims

sounding in fraud or a uniform course of fraudulent conduct by all defendants. Kearns, 567 F.3d

at 1126–27. Rule 9(b) does not apply categorically where a complaint asserts some claims that

do not sound in fraud or alleges a mixture of fraudulent and non-fraudulent conduct by at least

one defendant. Vess, 317 F.3d at 1105–06. For Defendants’ pleading argument to prevail, then,

the FAC must either allege entirely claims sounding in fraud or allege a unified course of

fraudulent conduct against all defendants. It is therefore necessary to determine the

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requirements for pleading a cause of action against a non-seller under the Oregon Securities

Law.

Pleading a claim against a non-seller requires two groups of allegations: a primary

violation by the seller, and requisite acts of participation or material aid by the non-seller. 

Anderson v. Carden, 146 Or. App. 675, 684 (1997). A prima facie case of participant or material

aider liability does not require any allegation of wrongdoing by the non-seller, let alone

allegations of fraud. Id. at 683 (“[T]he remedy against nonseller participants is not contingent on

the nonsellers’ violation of any law.”). Even where the allegedly unlawful securities sale

involves fraud, participation and material aid merely entails a connection to the unlawful

transaction. Prince, 307 Or. at 149–50. In this case, Plaintiffs do not allege any defendant

engaged in fraudulent or independently wrongful conduct.

The claims against Defendants do not sound in fraud because they do not “rely entirely”

on allegations of fraud. Vess, 317 F.3d at 1104. Plaintiffs allege the Aequitas group engaged in

a complex series of violations of the Oregon Securities Law, while the allegations against

Defendants describe their connection to ACF and the Funds. The allegations of Defendants’

participation and material aid in the Aequitas group’s sales of securities stand separate from the

wrongdoing alleged against the Aequitas group. See id. at 1103; cf. Kearns, 567 F.3d at 1125. 

Moreover, the FAC does not rely on a “uniform course of fraudulent conduct” by all Defendants

— Plaintiffs allege only that Defendants participated or materially aided in the sale of securities. 

Whether a non-seller knew of the facts making the transaction unlawful arises as an affirmative

defense, not as an element of the cause of action. Adams, 265 Or. at 528–29. Accordingly, the

specificity requirements of Rule 9(b) do not apply to the entirety of the complaint. The

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appropriate approach is to analyze the FAC’s allegations categorically, by subject of the

allegations.

B. Primary Violations through Non-Registration.

Allegations of selling securities without registration are not subject to Rule 9(b). As nonregistration claims do not require any showing of fraudulent conduct or even intentional

wrongdoing, Rule 9(b) could apply only to claims under ORS § 59.055 through the “claims

sounding in fraud” doctrine. See Vess, 317 F.3d at 1104. But Vess delimits the pleading

requirements of Rule 9(b) by claim. Id. A claim for violation of ORS § 59.055 is a strict

liability claim, requiring no allegations of fraud or other intentional wrongdoing. The claims for

non-registration therefore do not allege fraud, and are subject only to Rule 8. Walling v. Beverly

Enters., 476 F.2d 393, 397 (9th Cir. 1973). Accordingly, Rule 9(b) does not apply to the

allegations supporting Plaintiffs’ claim for selling unregistered securities, except for the extent to

which the same allegations support a separate allegation of fraud.

C. Primary Violations through Misrepresentation and Omission.

Plaintiffs’ claims alleging Aequitas committed primary violations of the Oregon

Securities Law through misrepresentation and omission sound in fraud, and must be pleaded

with particularity. Of the two misrepresentation or omission statutes, the parties contest the

applicability of Rule 9(b) only to claims under ORS § 59.115(1)(b); Plaintiffs agree that Rule

9(b) applies to claims under ORS § 59.135(2). Thus, Plaintiffs must plead all allegations of

misrepresentation and omission with particularity whether or not Rule 9(b) applies to the claims

of misrepresentation or omission. Still, Defendants seek to dismiss all claims arising under ORS

§ 59.115(1)(b) for failure to comply with the pleading requirements of Rule 9(b). The court

therefore must determine whether Rule 9(b) applies to claims under ORS 59.115(1)(b). 

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The allegations against the Aequitas entities, under both ORS § 59.115(1)(b) and

§ 59.135(2), allege a broad fraudulent scheme to conceal the financial infirmities of the Aequitas

enterprise. (FAC ¶¶ 71–175.) Regardless of whether all claims under ORS § 59.115(1)(b) are

subject to Rule 9(b), Plaintiffs’ claim of a substantial pattern of misrepresentation, omission, and

other deception sounds in fraud. Vess, 317 F.3d at 1101–05 (complaint alleging a course of

willful misrepresentations and omissions regarding pharmaceuticals was a “unified course of

fraudulent conduct” subject to Rule 9(b)); see also Aero Marine Engine, Inc. v. Transporter,

Inc., 3:05-cv-1469-HA, 2007 WL 3128500, at *3 n.2 (D. Or. Oct. 23, 2007) (concluding both

statutes create statutory fraud actions). Accordingly, the court holds that Rule 9(b) requires

pleading with particularity all of Plaintiffs’ claims of misrepresentation and omission.

D. Secondary Liability.

Defendants, and Tonkon in particular, argue claims of participant and material aid

liability are also securities fraud claims that must be pleaded with particularity. Defendants rely

on cases describing non-seller liability under ORS § 59.115(3) as a “securities fraud” claim. Jost

v. Locke, 65 Or. App. 704, 709 n.4 (1983); Paulsell v. Cohen, No. Civ. 00-1175-ST, 2002 WL

31496397, at *27 (D. Or. May 22, 2002). Neither Jost nor Paulsell applied Rule 9(b) to claims

for non-seller liability. Jost, 65 Or. App. at 709 n.4; Paulsell, 2002 WL 31496397, at *27. As

previously noted, participant and material aid liability does not require allegations of

wrongdoing, let alone fraud, by the non-seller. Anderson, 146 Or. App. at 683. Claims for nonregistration which do not allege fraud are not made subject to Rule 9(b) by the presence of

separate claims alleging fraud. Vess, 317 F.3d at 1104 (“The rule does not require allegations

supporting a claim to be stated with particularity when those allegations describe non-fraudulent

conduct.”).

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The cases Defendants rely on to establish a heightened pleading standard do not apply to

this case. Riley v. Brazeu, 612 F. Supp. 674, 678 (D. Or. 1985), required heightened pleading of

claims that a non-seller assisted in the seller’s fraud. The other cases individual defendants cite

also address aiding and abetting the fraud itself. See, e.g., Morgan v. Prudential Group, Inc., 81

F.R.D.. 418, 425 (S.D.N.Y. 1978); Varnberg v. Minnick, 760 F. Supp 315, 330 (S.D.N.Y 1991). 

Aiding and abetting fraud alleges a closer connection between the non-seller and the fraud than

participating or aiding in the sale. Under the Oregon Securities Law, secondary liability does not

require any participation in fraudulent conduct, only a sufficient nexus with unlawful sales. 

Anderson v. Carden, 146 Or. App. 675, 683 (1997). Accordingly, Plaintiffs may plead

Defendants’ secondary liability under the more liberal Rule 8 standard.

III. Collective References to the Aequitas Entities.

Throughout the FAC, Plaintiffs refer generally to “Aequitas” and the “Aequitas

Securities.” Defendants oppose Plaintiffs’ use of collective references to the Aequitas group and

to the securities sold by the Aequitas group. Under both Rules 8 and 9(b), Defendants contend

Plaintiffs must distinguish between legally distinct Aequitas entities and securities. Plaintiffs

disagree. Plaintiffs argue the court may, as a matter of law, disregard the separateness of the

Aequitas entities and the securities they sold. As to the entities, Plaintiffs contend the piercing

the corporate veil doctrine allows the court to disregard the nominal separateness of the Aequitas

entities. Plaintiffs also argue that the group-pleading doctrine allows Plaintiffs to refer generally

to the Aequitas group because of the close organizational and functional ties between the

entities. Regarding the securities, Plaintiffs ask the court to consider all securities issued by the

Aequitas group as an integrated offering — essentially, to disregard the separateness of the

securities. 

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A. Piercing the Corporate Veil.

The court first considers whether the doctrine of piercing the corporate veil supports

treating the Aequitas group as one entity for the purposes of the Oregon Securities Law. 

Plaintiffs argue the Aequitas group’s use of subsidiary and affiliate business entities helped

conceal the true financial health and structure of the Aequitas group. Therefore, Plaintiffs

conclude, the court may disregard the corporate separateness of the individual Aequitas entities

in this case. Oregon law does not support Plaintiffs’ conclusion. Even if Plaintiffs could pierce

the corporate veils between one or more Aequitas entities in a case against the Aequitas group,

Oregon law provides no basis for using veil-piercing to extend non-seller liability under ORS

59.115(3).

Plaintiffs do not cite, nor can the court find, any decision by an Oregon appellate court

considering whether the veil-piercing doctrine extends to secondary liability. This court’s task is

to “reasonably determine the result that the [Oregon Supreme Court] would reach if it were

deciding the case.” Gonzales v. CarMax Auto Superstores, LLC, 840 F.3d 644, 649 (9th Cir.

2016). Where Oregon appellate decisions do not provide direct guidance, the court may still

provide a remedy based on the methods of interpretation used by state courts. Id.

Oregon law allows courts to disregard corporate separateness to allow an injured party to

recover from a corporate parent based on an injury inflicted by a subsidiary or affiliate. State ex

rel. Neidig v. Superior Nat’l Ins. Co., 343 Or. 434, 454–55 (2007) (citing Amfac Foods v. Int’l

Sys. & Controls Corp., 294 Or. 94, 108–09 (1982)). Control and ownership alone is not enough

to support veil-piercing; the corporate separateness must be used to achieve some injustice or

perpetrate a fraud. Id. at 108. The underlying rationale is to keep wrongdoers from using

corporate forms to avoid responsibility. Id. 

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In Amfac, the court undertook a survey of past veil-piercing cases, to determine the

underlying rationale of the doctrine. Amfac, 294 Or. at 103–08. The court described the limited

liability inherent in corporate forms, and focused the exception on “conduct of the [parent or

affiliate] sought to be charged, and the relationship between the improper conduct and the

creditor’s claim.” Id. at 108. The “extraordinary remedy” of disregarding the separateness of

legal entities rests on the defendant’s misconduct. Id. at 103, 108–09. Here, Defendants’

liability is purely derivative of alleged violations by the Aequitas entities. Anderson, 146 Or.

App. at 683. Piercing the corporate veil to expand Defendants’ liability would disadvantage

parties who face no allegations of unlawful conduct, much less alleged use of corporate forms to

evade liability. Imposing expanded liability against parties who have not engaged in culpable

wrongdoing is inconsistent with the purpose of Oregon’s veil-piercing doctrine because the veilpiercing doctrine turns on culpable conduct by the defendant. Accordingly, even if piercing the

corporate veil would apply in a direct lawsuit by Plaintiffs against the Aequitas entities, the

rationale behind the doctrine does not support expanding the liability of third-party non-sellers

under the Oregon Securities Law. Therefore the court declines to apply the veil-piercing

doctrine to derivative liability actions under ORS § 59.115(3).

B. Group Pleading.

Plaintiffs contend the group pleading doctrine allows a general reference to an affiliated

group of business entities acting jointly. The group pleading doctrine allows a plaintiff to allege

wrongdoing against a group of individuals or entities jointly engaging in fraudulent or

conspiratorial conduct. Wool v. Tandem Computers, 818 F.2d 1433, 1440 (9th Cir. 1987)

(allowing group pleading where a group of corporate officers jointly published fraudulent

financial statements), overruled on other grounds by Hollinger v. Titan Capital Corp., 914 F.2d

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1564, 1575 (9th Cir.1990) (en banc). Defendants argue group pleading is inappropriate in this

case.

Here, Plaintiffs seek to use group pleading to plead the primary liability of the Aequitas

entities, which are not parties to this action. Group pleading arose as a mechanism for alleging a

defendant’s liability when the specifics of a defendant’s participation in a common scheme or

fraudulent action are unknown to a plaintiff. See, e.g., DiVittorio v. Equidyne Extractive Indus.,

Inc., 822 F.2d 1242, 1248 (2d Cir. 1987) (allowing group pleading against a partnership where

the allegations dealt with internal operations). Group pleading remains a way to allege joint

participation in a venture where a plaintiff cannot know the specifics of individual involvement. 

In re TFT-LCD (Flat Panel) Antitrust Litig., 599 F. Supp. 2d 1179, 1184–85 (N.D. Cal. 2009)

(allowing group pleading against corporate families as to a price-fixing conspiracy); see also

Wool, 818 F.2d at 1440 (noting that “where possible, Wool has extended such particularity to the

individual defendants.”). 

Defendants object to Plaintiffs’ use of group pleading in this lawsuit as impermissibly

lumping together all of the Funds and Control Entities. See Swartz v. KPMG LLP, 476 F.3d 756,

764–65 (9th Cir. 2007) (“Rule 9(b) does not allow a complaint to merely lump multiple

defendants together but ‘require[s] plaintiffs to differentiate their allegations when suing more

than one defendant . . . .’”) (internal quotation marks and citation omitted). Because each

defendant had varying involvement with different entities or groups of entities, Defendants argue

the FAC does not provide sufficient notice of their alleged involvement with the Aequitas group,

and thus the scope of the claims against them. Thus, Defendants conclude any use of group

pleading must also provide each defendant with sufficient notice of the allegations against that

defendant.

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Group pleading is appropriate where Plaintiffs allege fraud in the inner workings of

Aequitas. For example, Plaintiffs allege the Aequitas entities concealed the true operations and

financial health of the Aequitas entities through complex financial engineering and use of “shell”

entities. (FAC ¶¶ 163–67.) This allegation addresses conduct Plaintiffs could not know when

filing their lawsuit, and therefore is properly pleaded using group pleading. But most of the

allegations in the complaint relate to misrepresentations and omissions by individual Aequitas

entities. Here, Defendants’ objection to Plaintiffs’ use of group pleading has merit. 

Plaintiffs fail to satisfy the requirements of either Rule 9(b) or Rule 8 by referring

generally to “Aequitas” making misrepresentations and omissions. Defendants’ secondary

liability is contingent upon transactions they participated in or materially aided through working

relationships with ACF and the Funds. Defendants did not work with “Aequitas” — Defendants

worked with individual Aequitas entities. (FAC ¶ 30.) Defendants cannot defend against

Plaintiffs’ claim without knowing who sold the securities at issue. Plaintiffs argue Defendants

have sufficient information to know which “Aequitas” each allegation refers to, but this

argument does not address the requirements of Rules 8 and 9(b). Particularity, not presumption,

is the standard in federal courts. To provide notice to Defendants — and certainly to allege

fraud with particularity — Plaintiffs must, where possible, identify the entity that allegedly made

each misrepresentation or omission. 

The court should grant Defendants’ motions to dismiss as to all allegations of actions by

or interactions with “Aequitas” instead of a specific Aequitas entity. The allegations of

misrepresentations and omissions in paragraphs 72–135, 141–45, 148–50, 153, 159, 161, 166,

168, and 173 all improperly refer to “Aequitas” without identifying a specific Aequitas entity. 

Additionally, the allegations of Defendants’ participation in or material aid for the Aequitas

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group’s securities business in paragraphs 30, 32, 35, 39, 43, 45, 49, 51, 54, 57, 59, and 61 all

improperly refer to a defendant’s interactions with “Aequitas.”

C. Integrated Offering.

Plaintiffs also refer to the securities sold by all Aequitas entities, without distinction

among the various securities. Defendants argue that by referring to the Disputed Securities and

other securities sold by Aequitas entities without distinction, Plaintiffs improperly ignore

differences including type of security, seller, and offering documents. In response, Plaintiffs

contend the court should view any security sold by an Aequitas entity as an “integrated

offering,” disregarding the separateness of the securities when determining whether the

securities were sold in violation of the Oregon Securities Law. The court rejects Plaintiff’s

integrated offering theory. First, Plaintiffs do not establish that an integrated offering theory

exists under the Oregon Securities Law. Second, just as Plaintiffs cannot use a unitary reference

for the Aequitas group, Rule 9(b) does not allow them to make unitary reference to the securities

sold by the Aequitas group. 

Under Plaintiffs’ integrated offering theory, the Aequitas group was the “issuer” of all

securities sold by individual entities and, thus, the court may disregard the distinction between

the individual securities. The only authority Plaintiffs offer are cases interpreting the term

“issuer” in the federal Securities Act, defined in 15 U.S.C. § 77b(4). See, e.g., S.E.C. v. Murphy,

626 F.2d 633, 643 (9th Cir. 1980) (construing § 77b(4) to determine the availability of a private

offering exemption under § 77d). Plaintiffs conclude that “Aequitas” is the issuer of all

securities sold by any Aequitas entity, and therefore that the Disputed Securities and any other

securities sold by an Aequitas entity are part of an integrated offering. The court disagrees. 

Even if the Aequitas group is the issuer of all of the securities its subsidiaries and affiliates sold,

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it does not follow that the securities are all part of an integrated offering for purposes of

determining secondary liability for misrepresentations, omissions, and selling unregistered

securities.

First, “issuer,” as applied in § 77d and construed in Murphy, relates to the availability of

a private-offering exemption from registration. Murphy, 626 F.2d at 641–42. The question

presented there was whether, to qualify for an exemption from registration, a subsidiary had to

provide information to prospective investors about its parent company. Id. at 637–38. Murphy

did not address secondary liability or claims of misrepresentation. Id. The term “issuer” does

not appear in the federal analogue to ORS § 59.115. 15 U.S.C. § 77l; see Karsun v. Kelley, 258

Or. 155, 161 (1971) (ORS § 59.115 was modeled on 15 U.S.C. § 77l). Nor does “issuer” appear

in ORS §§ 59.115 or 59.135, even though “issuer” is defined and used elsewhere in the Oregon

Securities Law. See OR. REV. STAT. §§ 59.015 (9) (definition); 59.035 (use). Accordingly,

Murphy and similar cases do not support an integrated offering theory under the Oregon

Securities Law because they address construe a defined term that does not appear in the statutes. 

Plaintiffs offer no other authority for their integrated offering theory or any other basis for

disregarding the differences between the Disputed Securities as a matter of law.

Second, for the same reasons Plaintiffs cannot refer to the many Aequitas entities as

“Aequitas,” Rules 8 and 9(b) do not allow Plaintiffs to refer to securities sold at different times,

by different entities, and using different offering documents as “Aequitas Securities.” 

Defendants have varying relationships to different Aequitas entities and their securities

offerings, and thus lack sufficient notice of the claims against them where Plaintiffs use

“Aequitas Securities.”

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In sum, Plaintiffs’ allegations fail to distinguish between the securities sold by different

Aequitas entities. Plaintiffs’ integrated offering theory is unsupported by the Oregon Securities

Law, and does not allow consideration of all of the “Aequitas Securities” as a single securities

offering. The unitary reference to “Aequitas Securities” is also insufficient under Rules 8 and

9(b).

D. Dismissal with Leave to Amend.

The court should dismiss the FAC for failure to comply with Rule 9(b) insofar as the

FAC refers to “Aequitas” or the “Aequitas securities.” Oregon law does not support

disregarding the legal separateness of the Aequitas entities or the Aequitas securities for the

purposes of non-seller liability under the Oregon Securities Law. Moreover, the group-pleading

doctrine does not support allegations of conduct by “Aequitas,” except where the allegations are

of internal operations where Plaintiffs could not reasonably know which Aequitas entity or

entities engaged in specific conduct.

The FAC is premised on Plaintiffs’ legal theory that the Aequitas group and all securities

sold by Aequitas entities are legally indistinguishable in the secondary-liability context. Because

this theory is not legally viable, all allegations regarding “Aequitas” and “Aequitas securities”

are insufficiently pleaded. The court should therefore dismiss the FAC, with leave to amend,

and Plaintiffs should be required to allege actions by specific Aequitas entities and differentiate

between the securities sold by Aequitas entities.

IV. Consideration of Documents.

Defendants, and Deloitte in particular, ask the court to take judicial notice of several

documents in support of their motions to dismiss. Plaintiffs do not object to judicial notice of

some documents, specifically: (1) certain Generally Accepted Auditing Standards (“GAAS”)

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(Masuda Decl., Exs. 1–4); (2) SEC filings by the Funds (Id. Exs. 6–10); and (3) the complaint

filed in the SEC lawsuit. (Id. Ex. 25). Plaintiffs condition their position on the purpose of the

notice: they do not object to judicial notice of the documents, if limited to the existence of the

documents and not the facts therein. (Pls.’ Partial Objs. To Defs.’ Req. for Judicial Notice (ECF

No. 117), at 1.) Plaintiffs contest judicial notice of the facts asserted in the SEC filings and

application of the incorporation by reference doctrine to the PPMs. (Id.)

A. SEC Filings and Court Documents.

Courts may take judicial notice of information “not subject to reasonable dispute in that it

is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of

accurate and ready determination by resort to sources whose accuracy cannot reasonably be

questioned.” FED. R. EVID. 201(b). Court filings are public records, whose authenticity is not

subject to reasonable dispute. Lee v. City of Los Angeles, 250 F.3d 668, 688–89 (9th Cir.2001). 

SEC filings are also public records subject to judicial notice. Vesta Corp. v. Amdocs Mgmt. Ltd.,

129 F. Supp. 3d 1012, 1020–21 (D. Or. 2015). When taking judicial notice of public records,

courts take notice of the existence of the records rather than the information contained in the

records. Id.; Lee, 250 F.3d at 690. Courts may not take judicial notice of reasonably disputed

facts, nor may courts draw inferences from documents subject to judicial notice “that contradict

the reasonable inferences drawn from the facts alleged in Plaintiff[s’] complaint.” Lee, 250 F.3d

at 1022. Accordingly, the court takes judicial notice of the existence SEC Complaint and SEC

Filings, but only as to the existence of the documents.

B. GAAS Documents.

The court should take judicial notice of the GAAS document, to establish the terms of the

GAAS themselves. See In re Medicis Pharm. Corp. Sec. Lit., 689 F. Supp. 2d 1192, 1202 n.6

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(D. Ariz. 2009) (“In the context of securities litigation, courts frequently take judicial notice of

[similar accounting standards].”) But at this stage in the litigation, courts cannot infer from the

terms of the GAAS that an auditor complied or did not comply with the GAAS in their auditing

activities because the court must accept Plaintiffs’ allegations as true. S.E.C. v. Cotton, No.

SACV 06-0905 AG, 2006 WL 6382128, at *6 (C.D. Cal. Dec. 21, 2006) (citing In re Burlington

Coat Factory Sec. Litig., 114 F.3d 1410, 1421 (3d Cir. 1997)). Whether EisnerAmper and

Deloitte actually complied with GAAS in auditing the Aequitas entities is an issue of fact

inappropriate for resolution on a motion to dismiss.

C. Documents Incorporated by Reference.

The most contentious issue regarding extraneous documents is consideration of

engagement letters between Deloitte and some Aequitas entities (Masuda Decl. Exs. 12–13),

certain PPMs (Id. Exs. 14–16; Van der Weele Decl. Exs. 1–3), and Deloitte-audited financial

documents for some Aequitas entities (Masuda Decl. Exs. 16–24). While the motion for judicial

notice is submitted by all Defendants, Deloitte is the proponent of the documents at issue. (Def.

Deloitte & Touche LLP’s Reply in Supp. of Req. for Judicial Notice (ECF No. 133).) Deloitte

seeks judicial notice of these documents under the incorporation-by-reference doctrine. See

Knievel v. ESPN, 393 F.3d 1069, 1076 (9th Cir. 2005) (applying the doctrine). Incorporation by

reference allows the court to consider documents outside of the complaint when ruling on a

motion to dismiss, but only under a narrow set of circumstances. Id. A document is

incorporated by reference when its “contents are alleged in a complaint,” the document’s

authenticity is undisputed, and the document is not attached to the complaint. Id. (quoting In re

Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999)). The doctrine also applies

when “the plaintiff's claim depends on the contents of a document, the defendant attaches the

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document to its motion to dismiss, and the parties do not dispute the authenticity of the

document, even though the plaintiff does not explicitly allege the contents of that document in

the complaint.” Id. (citing Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1988)).

Deloitte argues the engagement letters, PPMs, and audited financial documents are

incorporated by reference in the FAC because the allegations against Deloitte explicitly mention

or implicitly rely on the documents. Plaintiffs do not dispute the authenticity of any of the

proffered documents, but, plaintiffs disagree that the FAC incorporates the documents by

reference. Alternatively, Plaintiffs argue the court should not use the documents to draw

inferences adverse to Plaintiffs at this stage in the litigation. See Vesta, 129 F. Supp. 3d at 1022

(refusing to draw inferences adverse to the nonmoving party from documents subject to judicial

notice in ruling on a motion to dismiss).

The court does not consider the engagement letters under the incorporation by reference

doctrine. The distinction between the engagement letter and the scope of work done by Deloitte

is important. Deloitte argues the engagement letters are subject to judicial notice, based on the

following premise: “Deloitte’s engagement as independent auditors depends on the contents of

the engagement letters which define the engagement.” (Req. for Judicial Notice at 11.) 

Deloitte’s argument for considering the engagement letters conflates the terms of the

engagement letter with the scope of work Deloitte actually performed for the Aequitas group, as

alleged in the FAC. Plaintiffs do not allege the contents of or otherwise rely on the engagement

letter between Deloitte and the Aequitas entities. Thus, while Deloitte’s work for the Aequitas

group is central to the FAC, the terms of its engagement letter are not.

The court does consider the PPMs, but not the other documents, under the incorporation

by reference doctrine. The FAC references the PPMs repeatedly (FAC ¶¶ 32, 39, 45, 51, 57, 61),

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and relies on the alleged misrepresentations and omissions in the PPMs as a basis for the

Aequitas entities’ primary violations of the Oregon Securities Law (see, e.g., id. ¶¶ 137–40). 

Because Plaintiffs allege the contents of the PPMs, but did not attach the PPMs to the complaint,

the PPMs are subject to judicial notice.

The parties also contest the extent to which the court may disregard Plaintiffs’ allegations

based on the PPMs. Deloitte argues the court may disregard allegations in the FAC when

contradicted by the PPMs. See Sprewell, 266 F.3d at 988 (“The court need not, however, accept

as true allegations that contradict matters properly subject to judicial notice or by exhibit.”). 

Plaintiffs reply that the court cannot use inferences drawn from extrinsic documents to contradict

the allegations in the FAC. Vesta, 129 F. Supp. 3d. at 1021–22 (citing Lee v. City of Los

Angeles, 250 F.3d 668, 688 (9th Cir. 2001). Deloitte argues Vesta is inapplicable to this case

because it dealt with judicially noticed documents, not documents incorporated by reference. 

See id. at 1020.

The court considers the PPMs as though they were attached to the complaint, and

construe the contents of the PPMs in the light most favorable to Plaintiffs. The court may “treat

[documents incorporated by reference] as part of the complaint.” United States v. Ritchie, 342

F.3d 903, 908 (9th Cir. 2003). The court must also construe the complaint in the light most

favorable to Plaintiffs when ruling on a motion to dismiss. See Zucco Partners, LLC v. Digimarc

Corp., 552 F.3d 981, 989 (9th Cir. 2009). Accordingly, whether under the analysis articulated in

Vesta and Lee or by treating the documents as part of the complaint, the court must construe the

contents of the documents in the light most favorable to the plaintiff when ruling on a motion to

dismiss. Id.

/ / / / /

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V. Misrepresentations and Omissions.

Defendants also assert six grounds for challenging Plaintiffs’ allegations of

misrepresentations and omissions regarding the Securities, arising under the elements of primary

violations of the Oregon Securities Law and the particularity requirement of Rule 9(b). First,

Defendants argue Plaintiffs fail to connect the majority of Aequitas’ alleged misrepresentations

and omissions with specific representations to purchasers. Second, Defendants seek to dismiss

all of Plaintiffs’ misrepresentation claims for failing to allege a causal connection between the

misrepresentations and Plaintiffs’ purchases. Third, Defendants contend Plaintiffs’

misrepresentation claims are improper because Plaintiffs do not allege that specific affirmative

representations were false when made. Fourth, Defendants argue Plaintiffs’ omissions claims

fail because Plaintiffs do not connect the alleged omissions with any affirmative statement. 

Fifth, Defendants seek dismissal of some misrepresentation and omission claims because the

misleading communications appeared to occur after the sale. Sixth, and finally, Defendants

claim Plaintiffs did not sufficiently allege the Aequitas entities acted with scienter. 

A. Structure and Purpose of ORS § 59.115(1)(b).

Initially determining the proper construction of ORS § 59.115(1)(b) is necessary here, as

multiple arguments depend on the terms of the statute. Plaintiffs’ claims against Defendants are

derivative of the Aequitas entities’ primary violations of Oregon securities laws. Specifically,

ORS § 59.115(3) provides for secondary liability for material aid or participation in sales

violating ORS § 59.115(1). One does not violate ORS § 59.115(3); secondary liability attaches

because of the seller’s violation and the non-seller’s involvement in the sale. Ainslie v. First

Interstate Bank of Or., N.A., 148 Or. App. 162, 184 (1997). Plaintiffs allege the Aequitas

entities violated ORS § 59.115(1)(b) by misrepresentations and omissions regarding the

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operations and financial health of the Aequitas entities. Accordingly, to resolve Defendants’

arguments that Plaintiffs insufficiently pleaded the Aequitas entities’ primary violations of

Oregon securities law, the court first must determine the requirements of a claim under ORS

§ 59.115(1).

The Oregon Legislature adopted ORS § 59.115(1)(b) in 1967. The subsection remains

substantially unchanged. The Legislature intended ORS § 59.115(1)(b) to mirror a provision of

the Federal Security Act of 1933, 15 U.S.C. § 77l(2). Karsun, 258 Or. at 161. Thus, decisions

construing the parallel federal statute are instructive in interpreting ORS § 59.115(1)(b). Id. The

provisions of ORS § 59.115 and the remainder of the Oregon Securities Law are “to be liberally

construed to afford the greatest possible protection to the public. Adamson v. Lang, 236 Or. 511,

516 (1964). 

Plaintiffs allege Aequitas’ primary violation occurred under the following provision: “A

person is liable . . . if the person sells or successfully solicits the sale of a security . . . by means

of an untrue statement of a material fact or omission.” OR. REV. STAT. § 59.115(1)(b). A

substantial disagreement exists regarding the scope of two components of the provision: what is

the scope of “selling a security,” and what nexus does “by means of” require. First, Defendants

argue the “sale” of a security is limited to individual purchases, i.e., each purchase is an

independent sale for purposes of Section 115. Plaintiffs construe “sale” to reach the entire

offering of related securities. Second, Defendants contend Section 115 requires Plaintiffs to

plead a causal connection between the misrepresentation and the sale. Plaintiffs contend Section

115 allows an action based on sales of a security merely if the seller made a material

misrepresentation or omission regarding that security, without need of causation.

/ / / / /

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B. Connection Between Misleading Information and Sale.

Defendants argue the FAC fails to allege sufficient connections between the alleged

misrepresentations and omissions and individual purchases. Defendants first contend Plaintiffs

must plead that individual purchasers purchased Disputed Securities based on misleading

information. This contention is incorrect. A primary violation of ORS § 59.115(1)(b) does not

require reliance on a misrepresentation or omission. Everts v. Holman, 64 Or. App. 145, 152

(1983) (“ORS 59.115(1)(b) imposes liability without regard to whether a buyer relies on the

omission or misrepresentation.”). Moreover, a case interpreting the federal analogue to ORS

§ 59.115(1)(b) rejected any requirement that a buyer receive the misleading communication, if

the seller sold a group of securities by means of a material misstatement or omission. See

Sanders v. John Nuveen & Co., 619 F.2d 1222, 1226–27 (7th Cir. 1980), cited in Everts, 64 Or.

App. at 152.

Defendants also argue Plaintiffs must plead individual receipt of offering documents

containing misrepresentations or omissions. In support, Defendants cite cases describing ORS

59.115 as covering “face-to-face transactions.” See, e.g., State v. Marsh & McLennan Cos., Inc.,

353 Or. 1, 12 (2012). Defendants interpret “face-to-face” as limiting the scope of an ORS

§ 59.115(1)(b) violation to an individual transaction between one buyer and one seller. 

Defendants also rely on an Oregon Circuit Court case, Loewen v. Galligan, No. A9005-02822,

1992 WL 12582753 (Or. Cir. Ct. Aug. 19, 1992), aff’d 130 Or. App. 222 (1994).1 Loewen held

that a securities transaction is not unlawful because of a subsequent misleading statement, as the

prior sale was not “by means of” a misleading statement. Id. at *8. Defendants rely on other

1 The appellate decision in Loewen did not discuss the aspects of the trial court’s decision

upon which Defendants rely. See Loewen, 130 Or. App. at 239 (deciding the ORS 59.115 claim

based on timeliness).

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statements in Loewen, suggesting the misleading statement must cause the transaction. Id. In

that respect, Loewen conflicts with Marsh and Everts by requiring transaction causation for a

claim under ORS 59.115(1)(b). Compare id. at *8–9 with Marsh, 323 Or. at 17 (reliance and

transaction causation are the same thing in securities fraud context) (quoting Dura Pharm., Inc.

v. Broudo, 511 U.S. 164, 180 (2005)) and Everts, 64 Or. App. at 152 (no reliance requirement

under ORS 59.115(1)(b)). Plaintiffs contend ORS 59.115(1)(b) requires only a nexus between

communicated misrepresentation or omission and a group of securities. 

Defendants argue ORS 59.115(1)(b) requires a plaintiff to plead receipt of a misleading

communication. While Defendants correctly note that Oregon cases interpreting ORS

§ 59.115(1)(b) all involve receipt of a misleading communication, nothing in those decisions

suggests receipt was a requirement. Instead, Everts expressly rejected a reliance requirement for

claims under ORS 59 § 59.115(1)(b). Everts, 64 Or. App. at 152 (citing Sanders, 619 F.2d at

1225). The holding in Everts does not require receipt of a misleading communication simply

because the plaintiff in that case received a misleading prospectus. Id.

Plaintiffs may plead sale of a security by means of a misleading statement where the

seller made a misleading statement in the offering documents or other promotional materials for

a security. Sanders contains an instructive fact pattern. There, a class of securities purchasers

sued under the federal analogue to Section 115(1)(b) (15 U.S.C. § 77l(2)), alleging that the

offering documents for a series of unsecured promissory notes contained misleading financial

information. Sanders, 619 F.2d at 1224. The defendants claimed not all class members received

the misleading offering documents, and thus could not state a claim because there was no causal

relationship between the misleading documents and purchases. Id. at 1225. The court rejected

the defendants’ argument, concluding requiring receipt of an offering document improperly

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imposes a reliance requirement and ignores the effect of misleading communications on the

market price and reputation of a security. Id. at 1225–27. The court held that issuing securities

using misleading documents makes all sales of that security “by means of” the misleading

document, regardless of whether every purchaser received or relied on the documents. Id. at

1227 (“[I]t is enough that the seller sold by means of a misleading prospectus securities of which

those purchased by the plaintiff were a part.”).

Sanders controls because it furthers the remedial purpose of Oregon’s Blue Sky law. 

Although Sanders is a non-binding aid to interpreting ORS 59.115, it interpreted the federal

statute (15 U.S.C. § 77l(2)) upon which ORS § 59.115 was modeled. Badger v. Paulson Inv.

Co., Inc., 311 Or. 14, 21 (1991). Sanders makes clear that § 77l(2) was intended to reach all

securities sold in an offering where the seller employed misleading communications to promote

sales. Sanders, 619 F.2d at 1227. Further, the same statutory language at issue in Sanders —

“by means of” — is at issue here. Compare OR. REV. STAT. § 59.115(1)(b) with 15 U.S.C.

§ 77l(2).

Sanders also is consistent with Everts because requiring receipt of misleading

communications serves no purpose other than implicitly requiring reliance. Sanders, 619 F.2d at

1225, Everts, 64 Or. App. at 152. Misleading communications have a broad effect on the

reputation of a seller in the market, even when the securities are sold in private offerings. Id. at

1227 (“[P]ublication of [defendant’s] true financial condition would have caused a total collapse

of the market for its notes.”). When the Funds sold securities using allegedly misleading

offering documents and financial statements, all buyers of a security experienced the market

effect of the Funds’ misrepresentations and material omissions. The Funds would not have been

able to find buyers for the Disputed Securities had they represented the true condition and nature

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of the Aequitas entities as a whole. See id. Accordingly, the court addresses as “sales” each

group of sales the Funds effected through the allegedly misleading PPMs and other

communications.

The court also adopts the same approach for Plaintiffs’ claim under ORS § 59.115(1)(a)

for violating ORS § 59.135(2). The provisions of ORS § 59.135 do not create an independent

cause of action, but are actionable only through ORS §§ 59.115 and 59.137. Marsh, 353 Or. at

8. Plaintiffs bring their ORS § 59.135(2) claim under ORS § 59.115(1)(a). Both ORS

§ 59.115(1)(a) and (1)(b) apply when a person “[s]ells or successfully solicits the sale of a

security.” The connecting language between the misleading communication and sale is similar:

“by means of” in ORS § 59.115(1)(b); “in connection with” in ORS § 59.135(2). Just as

misleading offering documents and promotional materials render a group of sales “by means of”

that misleading statement, the broad remedial purpose of the Oregon Securities Law also

supports finding those statements “in connection with” a group of sales, whether or not the

purchaser received the statements.

In sum, ORS § 59.115(1)(b) requires Plaintiffs to plead actionable misrepresentations and

omissions connected to a sale or group of sales of a security. Plaintiffs need not plead individual

receipt of or reliance upon the misleading communications.

C. Where and When Misrepresentations and Omissions Occurred.

Defendants next argue Plaintiffs must allege that misstatements and omissions appeared

in specific documents. Particularly, Defendants challenge the lack of specific connections

between the alleged misrepresentations and omissions and the Disputed Securities. Put

differently, Defendants argue it is unclear when the Funds made the alleged misleading

statements, and in connection with which Disputed Securities. Defendants advance two specific

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arguments regarding to Plaintiffs’ lack of specificity in when and where misleading statements

appeared. First, Defendants argue Plaintiffs must allege they received misleading information

prior to the sale. Second, Defendants argue Rule 9(b) requires Plaintiffs to plead when and

where the misleading statements occurred with particularity, including that the statements were

false when made. Plaintiffs contend that, under Everts, they need not plead any connection

between the misleading statements and a purchase of securities.

First, Plaintiffs must plead facts sufficient to show that allegedly misleading

communications preceded Plaintiffs’ purchases of the Disputed Securities. As discussed above,

the Oregon Securities Law does not require a plaintiff to allege or prove receipt of a misleading

communication if the seller uses misleading communications to sell a group of securities of

which the plaintiff’s purchase was a part. Everts, 64 Or. App. at 152. But the misleading

communication must precede the sale. Loewen, 1992 WL 12582753, at *8–9. 

Second, Plaintiffs must allege when and where misrepresentations and omissions

appeared. Rule 9(b) applies to the primary-liability allegations against the Aequitas entities, for

the reasons previously discussed. Under Rule 9(b), a plaintiff alleging misrepresentations or

omissions must allege when and where the misleading statement was made, “what is misleading

about [the] statement, and why it is false.” In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548

(9th Cir. 1994), superseded by statute on other grounds by 15 U.S.C. § 78u–4(b)(2). Defendants

also note that some of Plaintiffs’ allegations hinge on changing circumstances. For example, the

Aequitas group’s investment in Corinthian and the ACF–Holdings loan both became much more

problematic over time. (FAC ¶¶ 115, 155, 170–71.) Where, as here, whether a statement was

misleading when made depends on changing circumstances, the plaintiff must allege that the

statement was false when made. GlenFed, 42 F.3d at 1549.

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Accordingly, the court should grant the motions to dismiss as to Plaintiffs’ allegations of

misrepresentations and omissions by the Aequitas group, with leave to amend. The allegations

in paragraphs 72–135, 149–50, 160–61, 163, 168, and 173 do not identify where and when the

allegedly misleading statement appeared. The allegations in paragraphs 137–40 state when and

where misleading statements about uses of funds appeared, but lack allegations showing why the

statements were false when made. Similarly, the allegations in paragraphs 86–102, 115–16, 121,

132–33, 136, 144, 158, 160, 169, and 173 all concern misrepresentation or omissions about

circumstances that changed over time, without alleging facts showing affirmative statements

were false when made. Any amended complaint must comply with Rule 9(b) by alleging which

Aequitas entity made a misrepresentation or material omission, when and where the statement

was made, and what was misleading about the statement when made. 

D. Material Omissions.

Defendants argue most of Plaintiffs’ omission claims fail to identify an affirmative

statement made false by an omission. Under ORS § 59.115(1)(b), a violation occurs when a

seller makes an “omission to state a material fact necessary in order to make the statements

made, in light of the circumstances under which they are made, not misleading.” Plaintiffs

contend the broad remedial purpose of the Oregon Securities Law mandates full disclosure of

material facts in promotional or offering materials. 

No Oregon cases substantially discuss the contested provision, but two cases are

instructive. In Foelker v. Kwake, 279 Or 379, 386 (1977), the court found allegations of material

omissions sufficient when statements of account values were not accompanied by disclosure

regarding problems with the accounts. Plaintiffs cite Foelker as support for their method of

pleading, but Foelker identifies affirmative statements made false by omissions. Id. (seller told

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buyer that it “had ‘at least’ $10,000 in accounts receivable, and named some of such accounts,

but did not disclose that there were any problems in collecting such accounts”). Plaintiffs here

have not made that connection.

Plaintiffs’ reliance on Everts, where the court stated “ORS 59.115(1)(b) mandates a full

and truthful disclosure of material information,” is similarly inapposite. Everts, 64 Or. App. at

152. The relevant portion of Everts dealt with the impact of disclaimers, concluding boilerplate

disclaimers did not cure omission of material information regarding the seller’s financial

condition. Id. The court in Everts identified specific and general affirmative statements made

false by the seller’s material omissions. Id. at 149–50 (seller provided financial statements and

prospectus with information about the issue). Thus, Everts does not stand for the proposition

that the material omission provision of ORS § 59.115(1)(b) does not require an affirmative

statement made false by the omission. Accordingly, the court should grant the motions to

dismiss as to the material omissions alleged that do not identify an affirmative statement made

false by the particular material omission – specifically, paragraphs 71–135, 149–50, 153, 158,

160, 163, and 173. 

E. Scienter.

Scienter — “a guilty state of mind” in making misleading statements — is a required

element of a violation of ORS § 59.135(2). State v. Marsh & McClellan Co., 269 Or. App. 31,

47 (2015); Cox, slip op. at 13. Plaintiffs argue that they may allege scienter generally, and that

their allegations sufficiently allege scienter. Odom v. Microsoft Corp., 486 F.3d 541, 554 (9th

Cir. 2007) (“While the factual circumstances of the fraud itself must be alleged with

particularity, the state of mind — or scienter — of the defendants may be alleged generally.”). 

Defendants argue the plausibility requirement of Twombly and Iqbal applies to allegations of

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scienter. See United States ex rel. Lee v. Corinthian Coll., 655 F.3d 984, 1000 (9th Cir. 2011)

(applying plausibility standard to scienter). Defendants then contend Plaintiffs do not allege

facts supporting a plausible allegation of scienter. 

Plaintiffs must allege facts supporting a plausible inference of scienter, and scienter must

be adequately specified. The particularity requirement of Rule 9(b) did not apply to allegations

of scienter — consequently, Rule 8 applies to allegations of scienter just as it applies to all other

allegations. Lee, 655 F.3d at 1000; Odom, 486 F.3d at 554. Twombly and Iqbal’s plausibility

requirement derives from Rule 8. Iqbal, 556 U.S. at 677–79; Twombly, 550 U.S. at 553–56. 

Accordingly, Plaintiffs must plead facts supporting a plausible inference of scienter. They have

done so here. 

The FAC generally alleges facts supporting a plausible inference of scienter as to the

Aequitas entities. Plaintiffs claim Aequitas deceived investors, maintained a façade of financial

stability, and repaid prior investors with newly invested funds to conceal insolvency. Plaintiffs

do not specifically allege that every misleading statement was intended to mislead investors, but

the overall course of conduct alleged against the Aequitas group is sufficient to create the

necessary inference. Accordingly, the FAC sufficiently alleges scienter.

VI. Participant Liability.

Defendants challenge the allegations of their participation and material aid in the

allegedly unlawful sales. Plaintiffs’ failure to allege when and where misrepresentations

occurred, the falsity of statements when made, and which Aequitas entity made what statements

regarding which securities eliminates Defendants’ secondary liability, for purposes of the FAC. 

Defendants also contend that even if the Aequitas entities’ primary liability was sufficiently

pleaded, the allegations of participation in and material aid for the securities transactions are also

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insufficient. Accordingly, the court considers these arguments to determine whether the court

should deny Plaintiffs leave to amend because their theory of liability fails as a matter of law. 

The parties’ disagreement about the participation and material aid allegations centers

around two issues. First, relevant to all Defendants, the parties advocate divergent

interpretations of the required connection between participation or material aid, and unlawful

sales. Second, each defendant contests the sufficiency of the specific allegations Plaintiffs levy

against the individual defendant. Accordingly, the court first constructs the standard for

participation or material aid liability under ORS 59.115(3). The court next addresses the

sufficiency of the allegations against each individual defendant.

A. Standard for Non-Seller Liability.

Under ORS 59.115(3), “‘[p]articipate’ and ‘materially aid’ are separate concepts, not

synonyms.” Prince, 307 Or. at 149. Whether aid in a sale is material “depends on the

importance of one’s personal contribution to the transaction.” Id. Generally, participation

addresses direct involvement in the sale, while material aid involves indirect support for the

seller in making the sale. Id. at 150 (drafting partnership documents and providing legal advice

regarding private securities offering was material aid); Adams, 265 Or. at 527 (1973) (preparing

sales documents for use in transaction was participation); Ainslie v. Spolyar, 144 Or. App. 134,

145 (1996) (“Ainslie I”) (preventing a foreclosure and providing legal services prior to an

offering was material aid). Other Oregon decisions use the terms together, “participate or

materially aid,” without distinction. See, e.g., Fakhrdai v. Mason, 72 Or. App. 681, 684 (1985);

Ainslie v. First Interstate Bank of Or., N.A., 148 Or. App. 162, 184–85 (1997) (“Ainslie II”).

Plaintiffs, citing the liberal construction of Oregon’s securities laws mandated by Adamson v.

Lang, 236 Or. at 516, advocate for a broad scope of secondary liability.

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The parties primarily disagree regarding the required nexus between acts supporting a

securities business and the sale of securities. This dispute arises because Plaintiffs assert

participation and material aid liability against EisnerAmper, Deloitte, Tonkon, and Sidley based

on their alleged material aid in large groups of securities transactions. Defendants argue ORS § 

59.115(3) and Prince limit non-seller liability to acts where the purchaser of securities received

documents reflecting the non-seller’s “knowledge, judgment, or assertions.” Defendants

therefore conclude the allegations of participation or material aid are insufficient because they do

not allege involvement in each named plaintiff’s purchases. Plaintiffs contend ORS § 59.115(3)

encompasses any acts in support of the securities business of a seller, whether or not the acts

directly supported specific sales of securities. 

A non-seller’s liability depends on the importance of their conduct — whether

participation or aid — to the sale. For the reasons discussed below, the court concludes nonseller liability depends on a causal relationship between unlawful securities transactions and the

nature of the non-seller’s support for the transactions. First, the non-seller’s interactions with the

seller must have a causal relationship with the transaction. Adams, 265 Or. at 529 (finding

liability where a “sale would and could not have been completed or consummated without” the

non-seller’s actions). Second, the non-seller’s conduct must reflect some “knowledge,

judgment” or other specialized skills particular to the non-seller. Prince, 307 Or. at 149. If

persons materially aid an unlawful sale of securities, their professional roles are not a defense to

liability. Id. at 151.

1. Causal Relationship with Securities Sales.

Secondary liability under ORS 59.115(3) first requires interactions with a seller that have

a causal relationship to an unlawful sale of securities. Adams, 265 Or. at 529. For example, in

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Adams a lawyer participated in a transaction when he prepared, oversaw the execution of, and

filed registration documents for a security. Id. at 528–30. The court held that the lawyer

“contributed to the completion and consummation” of the transaction, which “would not and

could not have been completed or consummated without” various documents prepared by the

lawyer. Id. at 529–30. The Prince court also found liability based on conduct with a causal

relationship with a sale. There, an attorney provided legal advice to a seller, drafted necessary

legal documents and substantial parts of the offering documents, and provided a tax opinion

which investors received. Prince, 307 Or. at 148; see also Prince v. Brydon, 89 Or. App. 203,

206 (1988) (summarizing facts). The court held that sale of the securities could not have

occurred without the lawyer’s services. Prince, 307 Or. at 149 (quoting Prince, 89 Or. App. at

206). Further, the court held that the lawyer’s conduct was not immune from liability because

the services were “routine parts of a securities practice.” Id.

Building on Adams and Prince, the court in Ainslie I found non-seller liability based on

conduct more attenuated from the transaction in that case. Ainslie I, 144 Or. App. at 145. In

Ainslie I, the seller issued an offering memorandum for a Christmas-tree business, proposing to

purchase cutting rights on a tree farm. Id. at 138–39. The cutting-rights purchase was

contingent on receiving sufficient subscriptions from prospective investors. Id. Prior to

receiving sufficient subscriptions, the tree farm was about to undergo foreclosure. Id. The

seller’s attorney and a bank manipulated transactions to release funds from an escrow account

set up for the purchase, despite the lack of sufficient investors. Id. The court concluded that the

attorney had materially aided in the transaction, in part by “prevent[ing a] foreclosure that would

at the least have seriously impeded the offering.” Id. at 145. Ainslie I demonstrates that

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interactions enabling a seller to continue its securities business constitutes material aid for any

subsequent enabled transactions.

Plaintiffs also rely on Black & Co v. Nova-Tech, Inc., 333 F. Supp. 468 (D. Or. 1971), a

decision of this court interpreting ORS 59.115(3). Black applied ORS 59.115(3) expansively,

holding that designation of a law firm as corporate counsel in published reports made “the firm’s

partners ‘participants’ in any unlawful securities transactions in which the annual reports were

used for promotional purposes.” Id. at 472. Defendants contend Black should not guide this

court’s analysis, in part because Adams criticized Black as overbroad. See Adams, 265 Or. at

527–28 (“The decision[] in Black & Company v. Nova-Tech, Inc. . . . [is] not binding on us and

some of the statements in th[at] opinion[] may be overly broad, if literally applied.”) Prince

clarified the criticism of Black in Adams as “stat[ing] a possible question, not a conclusion.” 

Prince, 307 Or. at 149–50. Accordingly, the court considers Black as persuasive authority, but

does not adopt any statement from Black unless supported by other authority.

2. Materiality of Support for Transaction.

The Prince court also defined materiality under ORS 59.115(3), distinguishing essential

but ministerial tasks, which do not create secondary liability (“typing, reproducing, and

delivering sales documents”), from materially aiding acts such as drafting documents requiring

“knowledge [and] judgment.” 307 Or. at 149. A non-seller’s acts of participation or aid are only

material when the interactions require some judgment, skill, expertise, or ability particular to the

non-seller. Id. Put differently, an interaction is material if “could [not] have been performed by

anyone.” Id.

Defendants contend the materiality criteria announced in Prince protects non-sellers from

liability where a non-seller’s involvement with the sale was confined to their professional role as

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auditor or attorney, or where no offering documents reflected the knowledge or judgment of the

non-seller. Neither contention is correct. First, Prince expressly rejected limitations on liability

based on professional roles. Id. at 151. (“The defense against strict liability, in short, was to be

a showing of ignorance, not the professional role of the person who renders material aid in the

unlawful sale.”) Defendants’ reliance on Prince is further undercut because the reversed opinion

of the court of appeals held an attorney bore no liability because the attorney “only rendered

routine legal services to the partnership.” Prince v. Brydon, 89 Or. App. 203, 207 (1988), rev’d,

307 Or. at 149, 151. Thus, whether any defendant’s conduct was more or less than the ordinary

professional role of that defendant is immaterial to the question of participation or material aid.

Defendants also argue Prince limited non-seller liability to involvement where the buyer

receives some document reflecting the knowledge, judgment, or other expertise of the non-seller. 

In Prince, the court stated: “Typing, reproducing, and delivering sales documents may all be

essential to a sale, but they could be performed by anyone; it is a drafter's knowledge, judgment,

and assertions reflected in the contents of the documents that are ‘material’ to the sale.” Prince,

307 Or. at 149. Defendants read this sentence as limiting material aid to instances where a buyer

receives documents reflecting a non-seller’s “knowledge, judgment, or assertions.” But the

quoted sentence from Prince does not reflect the outer bounds of non-seller liability. Instead, the

court was defining the concept of materiality by contrasting varying roles in preparation and

execution of sales documents. Other interactions with a seller may create secondary liability for

material aid, subject to the causation and materiality requirements. Id. at 149–50. While this

construction of ORS 59.115(3) imposes a broad scope of potential secondary liability, the Prince

court noted that the legislative history of ORS 59.115(3) shows the legislature intended to place

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such a “substantial burden” on non-sellers who participate in or materially aid an unlawful sale

of securities. Id. at 150. 

Plaintiffs and Defendants both rely on Cox v. Holcomb Family Limited Partnership, an

Oregon Circuit Court decision regarding the issue of attenuation. In Cox, investors in an

allegedly fraudulent securities business brought a lawsuit under ORS 59.115(3) against two

banks and an accounting firm, alleging participation and material aid in the unlawful sale of

securities. Cox v. Holcomb Family Ltd. P’ship, No. 1308-12201, slip op. at 6-9 (Or. Cir. Ct.,

Dec. 14, 2010). The court found the allegations against the banks were sufficient, but the

allegations against the accounting firm did not state a claim for non-seller liability. Id. The

banks provided loans to the seller, giving the seller credibility and creating an illusion of

financial strength. Id. at 7. The court dismissed the claims against the accounting-firm

defendant, because the one-line allegation of “review[ing] financial statements for” the issuer

necessary for the loans was insufficient to establish “the extent or importance of [the accounting

firm]’s involvement or its connection to the underlying sales.” Id. at 9. The Cox analysis is

instructive here and, as appropriate, will be applied to individual defendants below.

Finally, Deloitte provided the court with supplemental authority on the scope of nonseller liability, in the form of a case decided after oral argument on the motions to dismiss. In a

decision construing the non-seller liability provision of Ohio securities law, a federal district

court in Ohio concluded a bank had not participated or aided in unlawful securities sales because

the bank only engaged in “normal commercial activities.” Cruz v. PNC Bank, Nat’l Ass’n, Case

No 3:16-cv-0292, 2017 WL 86327, at *2–3 (S.D. Ohio Jan. 10, 2017), appeal filed Jan. 31,

2017. Cruz does not inform the court’s analysis. The Ohio statute at issue in Cruz includes

language similar to that used in ORS § 59.115(3), see OHIO REV. CODE § 1707.43(A) (“every

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person that has participated in or aided the seller in any way in making such sale or contract for

sale”), but Ohio courts recognize an exception for banks engaged in “normal commercial

banking activities.” See Wells Fargo v. Smith, 2013-Ohio-855, ¶¶ 28–29 (Ct. App.) (collecting

cases). Oregon courts do not recognize such a distinction. The holding in Cruz turned on Ohiospecific principles, and thus has minimal persuasive weight on this case. See Cruz, 2017 WL

86327, at *3.

In sum, ORS § 59.115(3) imposes secondary liability on non-sellers when a non-seller’s

interactions with a seller have a causal relationship with an unlawful securities transaction. 

Adams, 265 Or. at 529–30. The causal relationship may exist even if the interaction is a routine

part of a professional’s work with sellers of securities. Prince, 307 Or. at 149, 151. The

interaction must enable an unlawful securities transaction, that it may be attenuated from the

transaction is not determinative. Adams, 265 Or. at 529–30; Ainslie I, 144 Or. App. at 145. The

interaction also must be material, in that it reflects the professional skill, judgment, or abilities of

the non-seller. Prince, 307 Or. at 149.

The participation-and-material-aid allegations against Defendants fall into three broad

categories. First, the law-firm defendants allegedly prepared documents necessary for the

consummation of transactions, materially aiding the sale itself. (FAC ¶ 30(c–d).) Second,

Integrity and Ameritrade allegedly facilitated some transactions with specific investors. (FAC

¶ 30(e–f).) Finally, the law-firm and accounting-firm defendants allegedly provided professional

services necessary for the success of the Aequitas group’s securities business as a whole. (FAC

¶ 30(a–d).)2

2 Plaintiffs also allege some additional acts of participation or material aid in their responses

to the motions to dismiss, but the court does not consider allegations not included in the complaint,

Schneider v. Cal. Dep’t of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998), except to allow leave to

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B. Deloitte.

Plaintiffs allege Deloitte participated and materially aided in the sale of multiple

Disputed Securities in its role as auditor for ACF, AIOF, AIOF-II, AEIF, ACOF, AIPF, and

other Aequitas subsidiaries. Deloitte argues the allegations against it do not state a plausible

claim for non-seller liability. 

First, Deloitte argues the allegations against it have an insufficient connection to any of

Plaintiffs’ securities purchases. Relying on Prince, Deloitte contends an auditor can incur

participation or material aid liability only if a purchaser receives the auditor’s work product —

audited financial statements and the auditor’s report — with the auditor’s consent. (Deloitte

Mot. at 14.) Plaintiffs disagree — and based on the previous analysis, so does the court. 

Deloitte’s position depends on its professional role as an auditor, but nothing in ORS 59.115(3),

or the cases interpreting it limit non-seller liability to actions with a non-seller’s professional

role. To the contrary, a non-seller’s professional role is irrelevant. See Prince, 307 Or. at 151 (a

non-seller’s professional role was not intended to be a defense). Nor does Deloitte’s citation to

the GAAS definitions of an auditor’s role limit its potential liability under ORS 59.115(3). 

Deloitte implicitly asks the court to assume Deloitte’s interactions with the Aequitas entities

were strictly limited by the GAAS, an assumption the court cannot make in ruling on a motion to

dismiss. Cotton, 2006 WL 6382128, at *6. Accordingly, the court rejects Deloitte’s proposed

auditor-specific scope of non-seller liability, and examines whether Deloitte’s interactions with

amend. Orion Tire Corp. v. Goodyear Tire & Rubber Corp., 268 F.3d 1133, 1137 (9th Cir. 2001). 

Accordingly, the discussion that follows analyzes the sufficiency only of the allegations in the FAC. 

Plaintiffs may include any additional bases for participation or material aid in any amended

complaint. Id.

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ACF and the Funds had a material, causal relationship with ACF and the Funds’ sales of

securities.

Plaintiffs allege Deloitte’s connection with and work for the Aequitas group was a

necessary component of the Aequitas group’s fundraising model. The Aequitas group allegedly

built the trust of prospective investors in part by prominently describing Deloitte as auditor of

multiple Aequitas entities engaged in securities sales, and by providing Deloitte-audited

financial statements to current and prospective investors. First, ACF and the Funds identified

Deloitte as the auditor in its promotional materials. (FAC ¶¶ 15, 34, 42, 48, 53, 58, 63.) 

Plaintiffs claim Deloitte’s association with the Aequitas entities provided credibility for their

securities sales, because of Deloitte’s reputation with investors. (Id. ¶ 15.) The “clout” Deloitte

provided to the Aequitas entities attracted and supported the retention of investors. (Id.) 

Additionally, prospective investors received Deloitte-audited financial statements as promotional

materials. (Id. ¶¶ 30(a), 33–34, 41–42, 47–48, 53, 58, 63.)

The court should deny Deloitte’s motion to dismiss as to its participation or material aid. 

Plaintiffs plausibly allege Deloitte’s participation or material aid in at least some securities

transactions by ACF, AIOF, AIOF-II, ACOF, AEIF, and Motolease. Because the complaint

insufficiently differentiates between the Aequitas entities, the securities they sold, and the groups

of securities sold by means of misleading securities, the court should defer a determination of the

sufficiency of Deloitte’s alleged acts of participation or material aided to an amended complaint.

Second, Deloitte objects to finding participation and material aid based on an auditing

relationship because such liability would extend to most, if not all auditors. Accepting the truth

of this premise arguendo, Oregon courts have considered and rejected similar arguments. In

Prince, the court considered the possible scope of liability for attorneys who prepare

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prospectuses, a common task for attorneys with a securities practice. Prince, 307 Or. at 150–51. 

The Prince court found that the legislative history for ORS 59.115(3) shows intent to reach the

routine activities of professionals who work with sellers of securities, placing the burden on

those professionals to “exonerate themselves from liability.” Id. The broad scope of non-seller

liability reflects a deliberate choice by the legislature. Id. Accordingly, even if auditors of

sellers of securities face broad potential liability, limiting such liability is beyond the purview of

this court. Routine auditing services may incur liability when the auditing has a material, causal

relationship with securities transactions. 

Third, Deloitte argues extensively that the PPMs did not contain Deloitte-audited

financial documents, and that most of the PPMs for Disputed Securities were issued before

Deloitte completed audits of financial statements. (Deloitte Mot. at 17–18.) Even if Deloitte is

correct, Plaintiffs do not allege the PPMs were the only promotional materials ACF and the

Funds used. (See, e.g., FAC ¶ 35 (alleging the existence of other promotional materials for the

ACF Notes highlighting Deloitte’s involvement), ¶ 43 (alleging the existence of other

promotional materials for the AIPF notes highlighting Deloitte’s involvement), ¶ 49 (alleging the

existence of other promotional materials for the AIOF notes highlighting Deloitte’s

involvement).) Plaintiffs also allege Deloitte consented to the Aequitas entities’ advertising their

association with Deloitte, at least in the PPMs. (FAC ¶¶ 15, 34, 42, 48, 53, 58, 63.) Accepting

the allegations in the complaint as true, and construing the complaint and all other materials in

favor of Plaintiff, the record supports a plausible claim for relief. See Zucco Partners, 552 F.3d

at 989.

The FAC plausibly alleges that the Aequitas entities used their affiliation with Deloitte to

attract potential investors. Deloitte is a well-known and respected professional services firm,

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and its association with the Aequitas entities plausibly could cause investors to make a

speculative investment in a company with limited transparency as to assets, valuation, and

operations. See Cox, slip op. at 8 (finding liability based on loans giving “the illusion of

credibility”). By associating itself with the Aequitas entities as auditor, Deloitte plausibly

materially aided in any transactions conducted by means of PPMs and promotional materials

advertising Deloitte as the auditor. Deloitte’s contribution to the transaction is not

interchangeable with any other professional services firm, as not every accounting firm has the

same reputation as Deloitte. See Prince, 307 Or. at 149 (aid to the transaction is not material if

services “could be performed by anyone”). Accordingly, Plaintiffs state a plausible claim for

non-seller liability against Deloitte based on the prominent mention of Deloitte as auditor in

several PPMs and on the importance of Deloitte’s reputation to the Aequitas entities’ securities

business.

Similarly, Plaintiffs’ allegation that various Aequitas entities used Deloitte-audited

financial statements in selling securities plausibly alleges material aid in any transaction

involving such financial statements. Plaintiffs plausibly allege prospective investors received

financial information audited by Deloitte. (FAC ¶¶ 15, 34, 42, 48, 53, 58, 63.) Any transaction

or group of transactions effected using the Deloitte-audited financial statements was “by means

of” such financial statements. Sanders, 619 F.2d at 1226–27. The credibility Deloitte’s

involvement lends to such financial statements plausibly could have a causal effect on any sales

made by means of Deloitte-audited financial statements. Cox, slip op. at 7–8; see also Black,

333 F. Supp. at 472 (finding non-seller liability based on designation as corporate counsel in

annual reports).

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Plaintiffs’ final theory of non-seller liability is that Deloitte’s auditing services enabled

the Aequitas group to conduct its securities business as a whole. The facts alleged in the

complaint do not plausibly support this claim — Plaintiffs rely on facts not alleged in the

complaint to support the importance of Deloitte’s services to the particular business structure the

Aequitas group employed. (Resp. to Deloitte’s Mot. (ECF No. 122), at 5–7.) Plaintiffs cannot

add new facts to the complaint in their response to a motion to dismiss. Schneider, 151 F.3d at

1197 n.1. The court should grant Deloitte’s motion as to Plaintiffs’ claim against Deloitte based

on alleged material aid for the Aequitas entities based on auditing activities alone, with leave to

amend. Orion Tire Corp., 268 F.3d at 1137.

In sum, the court should deny in part and grant in part Deloitte’s motion to dismiss. 

Plaintiffs plausibly allege Deloitte’s participation and material aid in securities transactions

conducted by means of PPMs and promotional materials identifying Deloitte as auditor, and use

of Deloitte-audited financial statements as promotional materials. Plaintiffs do not allege

sufficient facts to support their claim that Deloitte’s auditing services materially aided all of the

Aequitas group’s securities sales.

C. EisnerAmper.

First, EisnerAmper claims its connections with the Aequitas group were insufficient to

participate or materially aid in any sales of securities, even if the claims of the Aequitas group’s

primary liability were sufficiently pleaded. Plaintiffs’ allegations of material aid by

EisnerAmper follow a similar theory as the allegations against Deloitte. For the reasons

discussed above regarding the claims against Deloitte, the court rejects EisnerAmper’s

interpretation of Prince and ORS § 59.115(3). EisnerAmper’s advertised association with the

Aequitas entities, together with the use of EisnerAmper-audited financial statements as

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promotional materials in at least some Aequitas securities transactions, support a plausible claim

for participation or material aid under ORS § 59.115(3). Cox, slip op. at 7–8; Black, 333 F.

Supp. at 472. Plaintiffs also state a plausible claim for relief based on any sales made by means

of EisnerAmper-audited financial statements. Sanders, 619 F.2d at 1226–27. 

Second, EisnerAmper seeks dismissal of the claims against it based on the timing of its

involvement with the Aequitas group. EisnerAmper’s auditing relationship with the Aequitas

group allegedly ended in 2012. (FAC ¶¶ 16, 30(a).) EisnerAmper contends the alleged

misrepresentations, and thus unlawful sales, occurred after EisnerAmper ended its relationship

with the Aequitas entities. Most of this disagreement revolves around the issue of when and

where the Aequitas entities made misleading statements, an issue analyzed in depth above. The

precise scope of Plaintiffs’ claims against EisnerAmper is unclear because Plaintiffs pleaded

their allegations under a “unified offering” theory.

But Plaintiffs also contend EisnerAmper’s initial involvement with the Aequitas entities

constitutes material aid for all subsequent sales of securities by helping “Aequitas in building its

façade, behind which it operated for many years.” (Resp. to EisnerAmper’s Mot. to Dismiss

(ECF No. 121), at 15–16.) Put differently, Plaintiffs argue the Aequitas group could continue

selling securities only because its structure concealed its true financial condition from investors. 

EisnerAmper’s services as auditor allegedly helped Aequitas maintain an illusion of success and

stability. Accordingly, EisnerAmper materially aided in every security transaction an Aequitas

entity made during and after EisnerAmper was auditor to some Aequitas entities. This theory

may be viable, at least in some form. Ainslie I, 144 Or. App. at 145 (finding material aid where

lawyer and banks enabled a group of securities transactions through an escrow transaction). But

the FAC does not contain even conclusory allegations that EisnerAmper’s auditing services were

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necessary for the ongoing securities business of the Aequitas entities, let alone the facts showing

a plausible basis for such a theory. Twombly, 550 U.S. at 555. 

Accordingly, the court should grant EisnerAmper’s motion to dismiss as to the claim for

non-seller liability for sales of securities beyond those made by means of promotional materials

highlighting EisnerAmper or financial documents audited by EisnerAmper. Leave to amend is

appropriate, as the record does not indicate Plaintiffs cannot allege additionally facts showing

the plausibility of Plaintiffs’ theory. Cf. Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051–52

(9th Cir. 2008) (“Dismissal without leave to amend is proper if it is clear the complaint could not

be saved by amendment.”).

D. Tonkon.

Tonkon seeks its dismissal because the allegations against it fail to adequately plead

Tonkon’s participation or material aid in the Aequitas group’s securities transactions. Apart

from arguments analyzed previously in this Findings and Recommendation, Tonkon makes three

principal arguments. First, Tonkon challenges the allegations of participation and material aid

for failing to connect Tonkon’s drafting of PPMs, subscription agreements, and other

promotional documents with the misleading portions of such documents. Second, Tonkon

argues its “preparation and execution of documents” cannot constitute participation or material

aid, as a matter of law. Finally, Tonkon contends the claims based on its provision of “legal

services” to AIM and other Aequitas entities does not state a plausible claim for non-seller

liability because the allegations do not specify the legal services provided or what relationship

the legal services had to any unlawful securities transactions. For the reasons that follow, the

court should dismiss the allegations based on unspecified legal services, but otherwise deny

Tonkon’s motion to dismiss.

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Tonkon argues the document-drafting-based allegations of participation and material aid

are insufficiently pleaded because they do not connect Tonkon’s services with the misleading

portions of the Aequitas entities’ promotional materials. Here, Tonkon conflates material aid in

a sale with material aid in the unlawful portion of the sale. ORS § 59.115(3) imposes non-seller

liability based on participation or material aid in the sale itself, regardless of whether the

participation or material aid has any connection with the unlawfulness of the sale. Comp.

Concepts, 137 Or App. at 581; see also Anderson, 146 Or. App. at 683. Plaintiffs need allege

only the unlawfulness of the sale and Tonkon’s involvement in the sale. Anderson, 146 Or. App.

at 683.

Next, Tonkon contends Oregon decisions establish that a defendant has no liability for

“mere preparation and execution of documents.” See Fakhrdai, 72 Or. App. at 684. Oregon

decisions consistently reflect liability for attorneys and others who prepare documents with a

material, causal relationship to the sale. See id. at 686 (liability for “preparation and execution

of a contract”); Prince, 307 Or. at 149 (liability for drafting an offering circular and other

documents necessary for the transaction); Adams, 265 Or. at 529 (liability for preparation of

documents necessary to consummate securities transaction); Anderson, 146 Or. App. at 648

(“There is no question that a person who prepares documentation in connection with a sale of

securities is a person who ‘participates or materially aids’ in the sale under ORS 59.115(3).”). 

Thus, whether a non-seller was involved in document preparation or other conduct is irrelevant;

the proper inquiry is whether the non-seller’s involvement had a causal, material relationship

with the transaction. Prince, 307 Or. at 149–51. Plaintiffs allege that Tonkon drafted all or part

of several Aequitas entities’ offering documents and subscription agreements. The PPMs and

subscription agreements were necessary to consummate the sales of securities. Plaintiffs’

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allegations regarding Tonkon’s participation and material aid by drafting offering documents and

subscription agreements therefore state a plausible claim for relief under ORS § 59.115(3).

Tonkon also challenges the sufficiency of allegations that it participated or materially

aided by providing unspecified legal services directly to Aequitas entities selling securities, and

indirectly by serving as counsel to AIM. The provision of legal services to a seller may

constitute material aid if the legal services have a causal, material relationship with a transaction. 

Ainslie I, 144 Or. App. at 145. But Plaintiffs’ allegations are little more than a legal conclusion,

and thus do not render their legal-services-based theory plausible. Iqbal, 556 U.S. at 678–79. 

Plaintiffs do not specify what these legal services were and how the legal services had a causal,

material relationship with any securities transactions. (FAC ¶ 30(c).) Accordingly, the court

should dismiss any claims against Tonkon for non-seller liability based on legal services other

than preparation of documents necessary for sales of securities, with leave to amend.

E. Sidley.

Sidley’s motion to dismiss advances two arguments. First, Sidley correctly observes its

only alleged direct involvement in a sales transaction is in drafting a PPM for ACOF. Sidley

then argues there is no plausible allegation that any sale of ACOF violated the Oregon Securities

Law. Second, Sidley contends that Plaintiffs’ allegations of material aid in securities other than

ACOF do not state a plausible claim for relief. Plaintiffs dispute both contentions.

Sidley does not contest the possibility of participation or material aid in a sale through

preparing offering documents for ACOF. Instead, Sidley argues the allegations of a primary

violation by ACOF are insufficient. Without a primary violation by ACOF, Sidley would have

no derivative liability. Anderson, 146 Or. App. at 683. The sole allegation of a misleading

statement by ACOF is an alleged omission in a 2014 PPM (Masuda Decl. Ex. 14) regarding the

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use of investor funds. Sidley argues the allegation is insufficient because it does not identify an

affirmative statement made false by the omission, and it fails to allege scienter. For the reasons

discussed earlier in this Findings and Recommendation, the court should dismiss the allegation

against ACOF, with leave to amend, because it does not identify an affirmative statement made

false by the omission. OR. REV. STAT. §§ 59.115(1)(b); 59.135(2).

F. Integrity.

Plaintiffs allege Integrity participated and materially aided in sales of ACF Notes and

AIOF-II Notes by soliciting sales and preparing subscription agreements necessary to

consummate the transactions. Integrity argues these allegations are insufficiently pleaded

because Integrity’s involvement is within the exemption from liability in § ORS 59.115(4), and

because the complaint does not specifically allege which sales Integrity participated in. ORS

59.115(4) provides a qualified exemption from liability under ORS § 59.115(3) for “a person

whose sole function in connection with the sale of a security is to provide ministerial functions

of escrow, custody or deposit services.” Integrity served as custodian for some Disputed

Securities. (FAC ¶ 30(f).)

The court finds Integrity is not shielded from liability because of its status as a custodian. 

The plain text of ORS § 59.115(4) only exempts a custodian from liability when serving as a

custodian is the person’s “sole function in connection with the sale of a security.” Plaintiffs do

not rely solely on Integrity’s role as a custodian to support their claims; they also allege Integrity

solicited sales of some Disputed Securities, and drafted subscription agreements to complete

some transactions. (FAC ¶¶ 30(f), 36, 55.) The allegations against Integrity go beyond serving

as custodian and fall outside of ORS § 59.115(4). Accordingly, the court should deny

Ameritrade and Integrity’s motions to dismiss based on ORS § 59.115(4).

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Integrity’s remaining argument for dismissal is a lack of specificity in the allegations of

its involvement the Aequitas group’s securities transactions. In part, this argument depends on

applying Rule 9(b) to allegations of participation or material aid. Because Rule 9(b) does not

apply to allegations of non-seller liability, the FAC instead is subject to the Rule 8(a) plausibility

standard. Plaintiffs allege Integrity’s solicitation of some sales and preparation of documents in

support of other transactions. In both cases, Integrity’s alleged conduct plausibly has a causal,

material relationship with consummation of the transactions. Plaintiffs do not need to identify

every transaction Integrity allegedly participated in or materially aided at this stage of the

lawsuit. The court should therefore conclude that the allegations of Integrity’s participation and

material aid are sufficient under Rule 8(a).

G. Ameritrade.

Similarly to Integrity, Ameritrade seeks to dismiss the claims against it because of its

status as a custodian and the sufficiency of the allegations against it. Plaintiffs allege Ameritrade

steered customers to third-party financial advisors to purchase Disputed Securities. As with

Integrity, ORS § 59.115(4) does not shield Ameritrade from liability because Plaintiffs allege

acts of participation and material aid other than custodial services. (FAC ¶ 30(e).) 

The court also concludes that the allegations of participation or material aid against

Ameritrade are sufficient under Rule 8(a). Plaintiffs allege Ameritrade referred customers to

third-part financial advisors to buy ACF Notes. (FAC ¶ 37.) Construed in the light most

favorable to Plaintiffs, these factual allegations support a plausible inference that the referrals

had a material, causal relationship with any resulting purchases of ACF Notes.

/ / / / /

/ / / / /

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VII. Statute of Limitations.

Defendants seek dismissal of all of Plaintiffs’ claims based on conduct before April 4,

2013, based on the three-year statute of limitations for actions under ORS § 59.115. The FAC

asserts liability for sales beginning in 2011. The default statute of limitations for actions under

Section 115 is three years from the date of sale. OR. REV. STAT. § 59.115(6). A two-year

discovery rule applies, starting from the point at which when the plaintiff “discovered or should

have discovered the facts on which the action is based.” Id. The court may consider a statute of

limitations defense on a motion to dismiss where the “defense is obvious on the face of a

complaint.” Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 902 (9th Cir. 2013). Plaintiffs

concede their non-registration claim is subject to the three-year statute of limitations, but they

argue their claims based on material misrepresentations and omissions are timely under the

discovery rule. Defendants concede the discovery rule is available, but contend Plaintiffs do not

plead facts showing the discovery rule applies.

In the complaint, Plaintiffs allege they “did not know of the untruths or omissions and, in

the exercise of reasonable care, could not have known of the untruths or omissions.” (FAC ¶

190(c).) Plaintiffs rely on the preceding statement to invoke the discovery rule. Defendants

argue Plaintiffs must allege facts supporting application of the discovery rule to this case. 

Indeed, even before the heightened pleading standards announced in Twombly and Iqbal, a

plaintiff had to allege facts supporting invocation of the discovery rule. Mitchell v. Greenough,

100 F.2d 184, 186 (9th Cir. 1938); TRM Corp v. Paulsell, No. CV-02-215-ST, 2002 WL

51349112, at *2 (D. Or. June 4, 2002) (citing Mitchell). Oregon law also requires a plaintiff to

plead facts showing the date of discovery. Frohs v. Greene, 253 Or. 1, 7 (1969). Here, Plaintiffs

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do not plead the date or dates when they discovered the alleged violations. The court should

dismiss all of Plaintiffs’ claims based on sales prior to April 4, 2013, with leave to amend.

Plaintiffs also contend language limiting their claim for relief in paragraph 190(b) to the

three years prior to filing was a typographical error, and that they intended the claim in

paragraph 190(b) to also invoke the discovery rule. Defendants argue Plaintiffs cannot add

language to the complaint by claiming a typographical error. On a motion to dismiss, the court

considers the language in the complaint, and cannot rely on clarifications and elaborations in

responsive pleadings. Schneider, 151 F.3d at 1197 & n.1 (9th Cir. 1998). The existing language

in paragraph 190(b) controls, and limits Plaintiffs’ claims to three years prior to filing. Plaintiffs

may, on filing another amended complaint, allege a specific discovery date and supporting facts,

and an alleged discovery date to the claims in paragraph 190(b).

VIII. Standing.

Lastly, Defendants seek to excise many claims from the complaint based on standing. 

Defendants argue Plaintiffs do not have standing to assert claims regarding securities they did

not purchase. Plaintiffs respond they have standing to pursue claims regarding all Disputed

Securities because Plaintiffs and all members of the putative class share a common injury,

traceable to shared statutory violations. Plaintiffs cite multiple cases finding investor standing as

class representatives for securities-law violations for types of securities the investors had not

purchased, where the same alleged misconduct caused common injuries. E.g. Facciola v.

Greenberg Traurig LLP, 281 F.R.D. 363, 367 (D. Ariz. 2012); In re Juniper Networks, Inc. Sec.

Litig., 264 F.R.D. 584, 594 (N.D. Cal. 2009). Here, Plaintiffs allege the Funds sold the Disputed

Securities pursuant to a unitary course of misconduct, concealing and manipulating the financial

wellbeing of the Funds. (FAC ¶ 28–30.)

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The court should defer any ruling on standing until its ruling on class certification. The

standing arguments Defendants raise would not remove any party from this action. Each named

plaintiff asserts a cognizable claim against at least one defendant, and each defendant allegedly

participated or materially aided in at least one allegedly unlawful sale of securities. 

Accordingly, each plaintiff asserts, and each defendant faces, at least one claim creating Article

III standing. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992) (plaintiffs must allege a

concrete and particularized, actual or imminent injury in fact). 

Defendants’ concerns are better addressed in the context of class certification. Plaintiffs’

claims are for the purchase price of the securities they purchased, with interest. OR. REV. STAT.

§ 59.115(2). The FAC clearly identifies which securities Plaintiffs purchased. (FAC § 64–70.) 

The FAC make allegations about securities Plaintiffs did not purchase only in seeking to

represent purchasers of those unpurchased securities in a class action. (Id. ¶ 181.) The question

of whether Plaintiffs may assert claims based on securities they did not purchase is therefore

inextricable from the issue of whether this case may proceed as a class action. Accordingly, the

court should address the standing issues when and if this case reaches the class certification

stage. See Facciola, 281 F.R.D. at 367 (addressing standing during a motion for class

certification); In re Juniper, 264 F.R.D. at 594 (same); In re Sepracor Inc., 233 F.R.D. 52, 56 (D.

Mass. 2005) (same).

Conclusion

The court should GRANT in part and DENY in part the Joint Motion to Dismiss (ECF

No. 74), Deloitte’s Motion to Dismiss (ECF No. 85); EisnerAmper’s Motion to Dismiss (ECF

No. 78); Sidley’s Motion to Dismiss (ECF No. 81); Tonkon’s Motion to Dismiss (ECF No. 80);

Integrity’s Motion to Dismiss (ECF No. 95); and Ameritrade’s Motion to Dismiss (ECF No.

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113). The court GRANTS in part and DENIES in part Deloitte’s Motion for Judicial Notice

(ECF No. 77).

Scheduling Order

The Findings and Recommendation will be referred to a district judge for review. 

Objections, if any, are due April 6, 2017. If no objections are filed, then the Findings and

Recommendation will go under advisement on that date.

If objections are filed, then a response is due within 14 days after being served with a

copy of the objections. When the response is due or filed, whichever date is earlier, the Findings

and Recommendation will go under advisement. 

DATED this 23rd day of March, 2017.

 /s John V. Acosta 

JOHN V. ACOSTA

 United States Magistrate Judge

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