Source: http://mi.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20170711_0002143.EMI.htm/qx
Timestamp: 2018-01-23 07:50:28
Document Index: 33684406

Matched Legal Cases: ['§ 5', '§ 77', '§ 10', '§ 78', '§ 240', '§ 10', '§ 20', '§ 77', '§ 1658', '§ 5', '§ 12', '§ 77', '§ 12', '§ 5', '§ 77', '§ 77', '§ 5', '§ 5', '§ 12', '§ 12', '§ 12', '§ 5', '§ 12', '§ 5']

OPINION & ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT SHAFQAT BANGASH'S MOTION TO DISMISS (DKT. 11) AND GRANTING IN PART AND DENYING IN PART DEFENDANTS SHAHID BANGASH AND MEHBOOB CHAUDHRY'S MOTION TO DISMISS (DKT. 23)
This matter is before the Court on Defendant Shafqat Bangash's motion to dismiss (Dkt. 11), as well as Defendants Shahid Bangash and Mehboob Chaudhry's motion to dismiss (Dkt. 23).[1] The issues were fully briefed, and a hearing was held on March 23, 2016.[2] For the reasons discussed below, the Court grants in part and denies in part Shafqat's motion, and grants in part and denies in part Shahid and Chaudhry's motion.
Eleven Plaintiffs brought suit on July 31, 2015, claiming that they were offered and sold fake securities in the form of investment contracts and shares in Defendant Quaid-e-Azam International Hospital (“QIH”), which is located in Islamabad, Pakistan, through GHS, a limited company headquartered in Pakistan. Am. Compl. ¶¶ 1, 70.
Shahid, a dual citizen of the United States and Pakistan, holds himself out as an investment advisor specializing in certain overseas investments in Pakistan. Id. ¶¶ 31, 41. Shahid is the second-highest ranking board member of GHS and “acted as the collector of funds in the United States, including the Eastern District of Michigan[, ] and transferred the money back to Pakistan.” Id. ¶¶ 34, 43-44. Shafqat, who is domiciled in Battle Creek, Michigan, serves on the board of directors of GHS and, based on filings with the Securities and Exchange Commission of Pakistan, is GHS's Chief Accountant. Id. ¶¶ 32, 46. Chaudhry, a resident of Pennsylvania, is the Vice Chairman on QIH's board of directors, as well as the “official spokesman and right-hand-man” of Shaukat, the Chief Executive Officer of GHS, and one of the principal actors in the alleged scheme. Id. ¶¶ 36, 58-59. Chaudhry solicited several investors and appeared “on live television broadcasted in the U.S. and Pakistan, ” where he “gave investors a 500% guarantee in return on investments.” Id. ¶ 61.
According to Plaintiffs, Shahid, Shafqat, Shaukat, and GHS “directed numerous promotional communications, including telephone calls, written correspondence and others to Plaintiff [Amin] Khan, ” id. ¶ 83, the purpose of which was to solicit Khan's investment in the building of QIH, see id. ¶¶ 40, 85-87. More specifically, on June 14, 2007, Shaukat called Khan's home and left a message for Khan to call Shaukat back. Id. ¶ 84. Three days later, on June 17, 2007, Shaukat visited Khan's home in Troy, Michigan, to solicit Khan's investment. Id. ¶ 85. After conducting meetings in Michigan, during which “Defendants represented to Plaintiff Khan that his investment in GHS would be used to build hospital facilities for QIH and finance operations, ” Khan “sent a check to Defendant Shaukat to invest in shares in GHS.” Id. ¶¶ 86-87, 89.
Khan now claims that he, along with other Plaintiffs, received shares in GHS, but those shares were “worthless.” Id. ¶ 90. In an attempt to cover up Shaukat's fraudulent scheme in the unregistered offer and sale of securities, Shafqat sent an email on April 28, 2013 to over 70 investors to convince them that their money was safe and the securities were real. Id. ¶¶ 1, 52-53, 83. According to Plaintiffs, this email prevented many investors from mitigating their damages. Id. ¶ 53.
Defendants raise three main arguments in their motions: (i) Plaintiffs' federal claims are barred by the applicable statutes of limitations; (ii) the action should be dismissed on forum non conveniens grounds; and (iii) the Court lacks personal jurisdiction over Shahid and Chaudhry. The Court considers each argument in turn.
Plaintiffs allege in count one of their amended complaint that Defendants violated §§ 5(a) and 5(c) of the Securities Act, see 15 U.S.C. §§ 77e(a), (c), because they did not file or have in effect a valid registration statement in connection with the offer and sale of shares in GHS. See Am. Compl. ¶¶ 221-223. Plaintiffs further allege in count two that Defendants violated § 10(b) of the Securities Exchange Act (“Exchange Act”), see 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, see 17 C.F.R. § 240.10b-5, because Defendants made material misrepresentations and omissions concerning the sale of securities with the intent to defraud. See Am. Compl. ¶¶ 225-232. In count three, Plaintiffs allege that, because Defendants violated § 10(b) and Rule 10b-5, Defendants are also liable under § 20(a) of the Exchange Act. See Am. Compl. ¶¶ 233-235.
Shafqat argues that Plaintiffs' claims in count one are time-barred under the one-year statute of limitations under the Securities Act, see 15 U.S.C. § 77m, and their claims in counts two and three are barred under the two-year statute of limitations under the Exchange Act, see 28 U.S.C. § 1658(b)(1). Def. Shafqat Mot. to Dismiss at 20-22. The Court agrees with Shafqat regarding his first argument but disagrees with his second argument.
1. Statute of Limitations for Violations of § 5 of the Securities Act
Section 13 of the Securities Act provides that an action under § 12(a)(1) of the Act must be brought “within one year after the violation upon which it is based.” 15 U.S.C. § 77m. A violation of § 12(a)(1) occurs, in turn, when a person “offers or sells a security in violation of [§ 5 of the Securities Act].” 15 U.S.C. § 77l(a)(1). Sections 5(a) and 5(c) of the Securities Act “together require that securities be registered before they can be sold or offered for sale.” SEC v. Sierra Brokerage Servs., Inc., 712 F.3d 321, 328 (6th Cir. 2013) (citing 15 U.S.C. §§ 77e(a), (c)). The registration requirement of § 5 exists “to protect investors by requiring they receive sufficient information to make informed investment decisions.” Id. (citing SEC v. Ralston Purina Co., 346 U.S. 119, 124 (1953)). A violation of § 5 occurs when: (i) there was no registration statement in effect for the securities, (ii) a person directly or indirectly sold or offered to sell the securities, and (iii) means of interstate transportation or communication were used in connection with the offer or sale. SEC v. Bravata, 3 F.Supp.3d 638, 659 (E.D. Mich. 2014).[4]
The one-year period for violations brought under § 12(a)(1) focuses “on the last conduct constituting the alleged violation, ” Cummings v. Paramount Partners, LP, 715 F.Supp.2d 880, 894 (D. Minn. 2010), rather than when the plaintiff actually discovered the non-registration violations, Nolfi v. Ohio Ky. Oil Corp., 675 F.3d 538, 553 (6th Cir. 2012) (collecting cases and holding that the discovery rule for § 12(a)(2) claims does not apply to § 12(a)(1) claims, and, therefore, the one-year statute of limitations “runs from the date of the violation irrespective of whether the plaintiff knew of the violation”); In re Biozoom, Inc. Sec. Litig., No. 1:14-CV-01087, 2015 WL 1954553, at *3 (N.D. Ohio Apr. 29, 2015) (“[T]he statute of limitations runs from the last unlawful action that directly relates to a particular transaction that violates the Securities Act.”).
Shafqat first argues that the one-year period is “triggered by inquiry notice, ” which is “when ‘storm warnings' were on the radar sufficient to alert the claimant that things were amiss.” Def. Shafqat Mot. to Dismiss at 20. According to Shafqat, storm warnings were present after Plaintiff Nasir Akbar accused Shaukat of running a Ponzi scheme in an April 2013 email. Id. at 21. Shafqat also contends that the last investment activity alleged by any of the Plaintiffs is when Plaintiff Mubashir Shah received his purported shares in GHS on September 4, 2012. Def. Shafqat Mot. to Dismiss at 6, 21 (citing Am. Compl. ¶ 137).
In response, Plaintiffs argue that, under the discovery rule, the “earliest any Plaintiff began to suspect that their investment had been usurped by Defendants by way of fake securities was in August of 2014” after “most of the Plaintiffs in this case attended a convention for the Association of Pakistani Physicians of North America” held between August 13 and 17, 2014. Pls. Resp. to Def. Shafqat at 22 (Dkt. 19). Plaintiffs did not refute the assertion that the last investment activity occurred on September 4, 2012.
As noted above, Plaintiffs' amended complaint alleges violations of §§ 5(a) and 5(c) of the Securities Act. Thus, under §§ 12(a)(1) and 13, Plaintiffs had one year from the last unlawful action constituting an alleged non-registration violation to bring these claims - meaning that, at most, Plaintiffs had until September 4, 2013 to file their complaint. Plaintiffs' discovery-based argument is without merit in this case. See Nolfi, 675 F.3d at 553.
Because Plaintiffs did not initiate this action until July 31, 2015, well beyond the one-year limitations period, the Court concludes that Plaintiffs' claims under § 5 of the Securities Act are ...