Source: https://www.scribd.com/doc/72192844/Scan
Timestamp: 2018-03-17 11:52:48
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Matched Legal Cases: ['art. 1', 'art.\n1', 'art. 3', 'art.\n3', 'art. 3', 'art. 4', 'art. 7', 'art, 13', 'art 8', '§ 771', '§ 771', '§ 771', '§ 771', '§1962', '§1341', '§ 1343', '§1', '§1964']

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IN THE SUPERIOR COURT OF THE STATE OF WASHINGTON 5
IN AND FOR THE COUNTY OF CLARK RENE BABI, GWENDOLYN BABI, and MARK SILBERNAGEL, Plaintiffs, v. CORP., a Florida corporation; G TAL GROUP, LLC., a cticut limited liability company; SV SITUATIONS FUND, LTD, a Delaware corporation; MAS GLOBAL SOLUTIONS INC., a Delaware ation; AURORA FINANCIAL SYSTEMS "a Delaware corporation; SCOTT STAGG individually and as a Director of Smart SMS Corp., Stagg Capital LLC., SV Special Situations Fund, LTD, MAS Global Solutions Inc., and Aurora Financial Systems Inc.; and AMIR KHAN individually and as a Director of Smart SMS Corp., and Aurora Financial Systems fnc.; MICHAEL CIBEREY individually and as an officer of Smart SMS Corp, and Aurora Financial Systems rnc.; KEN LOONEY individually and as a director of Smart SMS Corp.; RICHARD COOKE individually and as a director of Smart SMS Corp, and Aurora Financial Systems Inc.; BRIAN TRAINOR, individually and as an officer of Smart SMS Corp., SV Special Situations Fund, lTD, Stagg Capital Group, and Aurora Financial Systems, Inc.; and GOTTBETTER & PARTNERS, LLP, a New York limited liability partnership, Defendants.
NO. 112022742 AMENDED COMPLAINT (Breach of Contract; Breach of Implied Duty of Good Faith and Fair Dealing; Tortious Interference with Contractual Relations; . Promissory Fraud; Fraudulent Transfer; Securities Fraud; Injunctive Relief; Civil RICO)
GOMES NOW plaintiffs by and through their attorneys, andfof defendal1tsallege asfollows:
AMENDED COMPLAINT-- Page 1
MILLER Busr~mss LAW 1012 SW KlNG A VENUE, #1 01 PORTLAND,OR97205 (503) 764-1453
f. 1.1.
ThiSComplaint lnvolveslhe unlawful actions of-an .organized and coherent
group or enterprise engaged in fraud and stock manipulation to gain control of a public company to which they were lenders, officers and directors, purposely driving the stock price down and using their control of the .company to steal its assets, all directly causing the loss suffered by plaintiffs. Plaintiffs bring claims herein for breach of contract, with contractual
breach of implied duty orgQod faith and fair dealing, tortiotlsinference relations, promissory fraUd, fraudulenltransfer,federal RICO and injunctive relief 1.2.
and state securities fraud, civil
Plaintiff Rene Babi.is an individual residing in the State of Washington and
was,a! all limes relevant to this action, a Shareholder and officer of RBAlntemationallnc. ("RBAI"), a Washington corporation that is now dissolved., but-was engaged in the for-profit business Qf providing services and products used in banking commerce, ..card fraud protection, and financial transactions worldwide.
Plaintiff Gwendolyn Sabi is an individual residing in the State of Washington
and was, at all times relevant to this action, a shareholder and officer of RBAL
PiainliffMark.Silbernagel·js an individual.·residlng·inthe State of Washington action, a shareholder and officer6fRBAI. ("Smart") is a corporation organized and
and was,at aUtimesrelevanHolhis 1.S.
Defendant Smart SMSCorp.
existing under the laws of the State of Florida, with its office and principal place of business located at 3 Greenwich· Office Park, GreenWich, Connecticut 06831. Smart at
aUtimes relevant to this action, was engaged in the business of providing SAP and IBM 23 24 25 26 consulting services through its.subsidiary, Kevlertech, lnc., dlbla Millenniumlnformatjon& Technology Consultants, ltd. ("MIT,}, prepaid bank cards and kioSKS through its
subsidiary, Columbia Card Systernslnternational rCCS!"), and mobile banking services and products through ifs$ubsidiary, RSA Acquisition Gorporation("RBAAcQuisition").
AMENDED COMPLAlNT-- Page 2
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Defendant Stagg Capital Group, LLC C'Stagg Capital") on information and
belief is a limited liability company formed under the)aws of the State of Connecticut, with its principe:!] place of business located at 3 Greenwich Office Park, GreenWich, Connecticut 06831. Stagg Capital is a lender to Smart. 1.7. Defendant SV Special Situations Fund, LTD f'SV Fund"), on information organizeaand existing under the laws .0ftheState of
and beHef. iaacorporafion
Delaware, with its office and principal place of business 10cElted at3 Greenwich Office Park, Greenwich, ConnectiCUT06831. SV Fund isa lender to Smart and the owner of
more than 10%.of the issued and outstanding shares of Smart.
1.8. Defendant MAS Global Solutioos, Inc. ("MAS Global"), on information and
belief is a corporation organized and existing under the laws of the State of Delaware, with its office and principal place of business located at 3 Greenwich Office Park, Greenwich, Connecticut 06831.
1.9. Defendant Aurora Financial Systems, Inc. ("Aurora"), on information and
belief is a corporation organized and existing under the laws of the State of Delaware, with its office and prinCipal place of business located at 3 Greenwich Office Park, Greenwich] Connecticut 06831.
1.10. Defendant Scott Stagg ("Stagg"), an owner of a number of hedge funds, is
now and has been at all times relevant to this action, a director and/or officer of defendants Smart, SV Fund] Stagg Capital, MAS Global, and Aurora, and has individually controlled, directed, participated in, and formulated the policies relating to the acts, practices, and activities of said companies, which is the subject matter of this Complaint. 1.11. Defendant Amir Khan ("Khan") is now and has been at all times relevant to action, a director and/or officer of defendants SV Funds, Smart, and Aurora, and has individually controlled, directed, participated in, and formulated the policies relating to the
AMEND.ED COMPLAINT-- Page 3
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acts, practices., and activities. of said companies, which is the subject matter of this complaInt
1.t2.. Defendant Michael Ciberey ("Ciberey") has been at all times relevantto this
action, an agentandlor·officer
of defendants Smart and Aurora, and has participated in
and formulated the pOlicies relating to the acts, practices, and activities of said corporations which are the.subject matter oHhis Complaint.
1.13. Defendant Ken Looney ("looney") is .and has beenatal.1 times relevant to
thisaciion, a director of defendant Smart and has participated in and formulated the
policies relating to the acts, practices, and activities of said corporation, which is the subject matter of this Complaint.
1.14. Defendant Richard Cooke ("Cooke") is and has been at all times relevant to 12
this action, a director of defendants Smart and Aurora and has participated in and
formulated the polici~ relating tp the acts, practices, anO activities of said corPorations, which is the Subject matter ofthi.s Complaint.
1.15. Defendant Brian Trainor ("Trainor'') has been at all times relevant to this
action, an agent andlor officer of defendants Smart, .AUrora, Stagg.Capital,. and SV Funds, and has participated in and formulated the policies relating to. theacts,practices, and
activities of said corporations which are the subject matter of this Complaint.
1.16. Defendant Gotlbetler & Partners, lLP ("Gotlbetler"), on information and
belief, is a limited liability partnership organized and existing under the laws of the State New York, with its office and principal place of business located in New York; New
It 2.1.
Venue is proper in this court because a substantial portion of the transaction
complained of herein occurred in Clark County, Washington.
26 !/Jill
AMENDED COMPLAINT-- Page 4
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This court has personal jurisdiction over the defendants because: (a)
defendants have conducted business in the state ofWashington~ (b) this action arises out of a contract entered into and executed by all parties while in the state of Washington; and (c) the parties have consented to personal jurisdiction in the courts of the State of Washington pursuant to a contract entered into and executed by all parties while in the state ofWashlngton. 2.3. This court has jurisdiction over the subject matter hereof and the parties
hereto pursuant to RCW 2.08.010 and RCW 4.28.020. Ill. COMMON FACTUAL ALLEGATIONS The Smart-RBAI Merger Transaction 3.1 Since 2003, RBAI ha<:lbeenproviding debit card processing, mobile
banking, and reaHime Settlement services .for RBAI member banks. RBAJ was 13 14 15 processing for two member banks 2007, and had a third cOl1tractedfor 2008. RBAI
had developed state-of-the-art proprietary technologies and banking system patents ("RSAI Assets") and was well recognized .in the banking systems community for its
16irm9vations. 17 18 19 20 21 3.2 In mid-200?., defendant Smart began negotiating for thefjurchase of RBAI.
The owners ·of RBAI., including pla.intiffs Rene Babi, .Gwen Babi and Mark Silbernagel, were Informed by the CEO of Smart that Smart wanted to acquire the RBAI banking business along with the RBAI employees and RBAI Assets to integrate with the contracts that Smart had with SAP, IBM, MIT, and CCSI; thus, making RBAI
enormously valuable. For this to be a tax-free merger for the RBAllowners, the RBAI banking business needed to .be continued for one year. The R~AI·owners interested, and in late 2007 .signeda Memorandum of Understanding") Memorandum of Understanding
were ("2007
proceed, At the time of signing the Memorandum
of Understanding, Smart shares were valued at approximately $0,90.per share.
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3.3 2 3 4 5 6 7
In mid-December 2007, defendant Khan, as a Director of Smart, flew to
Vancouver, Washington, to meet with the RBAI owners and stated that the CEO of Smart had targeted the RBAI Assets for the purpose of liquidating them after the merger, and that the CEO of Smart had no intention of keeping the business process running, or keeping the RBAI employees, and that he had already received a quote on one of RBAI's patents from a third party for $3.5 million. The RBAI owners then rejected Smart's offer to buy RBAL Thereafter, defendant Stagg, as a Director of Smart, flew to Vancouver, Washington to also meet with the RBAI owners, whereupon both
defendants promised the RBAI owners to not let the CEO of Smart proceed with his plans, but instead to keep the RBAI banking business and employees intact as a valuable Smart investment. 3.4 In JateOecember 2007., Smart and RBAI executed an agreement
specifying the terms under which a transaction· between the parties would take place. It was signed by defendant Khan as director of Smart in place of Smart's CEO, who has alleged that defendant Khan forged hisslgnatur.e (not known to the plaintiffs at that time). According to the terms of the agreement, RBA Acquisition, a whoHyowned subsidiary of Smart,.: ould purchase the RBA! Assets for approximately $2 million cash, w assume certaln substantial liabilities of RBAI ($1.2 million},andkeep employe.esand the RBAI business process intact. Smart
W<;lS
the RBAI
to make a cash payment
upon closing, a subsequent cash payment following .closing, assume RBAl's liabilities, and issue 10 million shares in Smart to the RBAI shareholders, including plaintiffs Rene Babl, Gwendolyn Babiand Mark Silbernagel. The close date for the merger transaction was orig.inaHyscneduledfor on or about February 15,2008. 3.5 A merger agreement was signed on April 18, 2008, with the expectation to
close within approximately two months. The transaction did not close as scheduled due
.to delays caused by
Subsequently, the parties scheduled a series of new
COMPLAINT--
MIllER BUS/lI.ESSLnv
1012 SWKINGAVENUE, #J()] PORTLA.ND. OR 97205
(503)764-1453
closing dates. But in each case, the transaction failed to close due to either Smart's failure to aeiiver certain documents Or Smart's demand to postpone the transaction until
certain filings with the SEC could be completed. An amended merger agreement was signed in late August 2008. 3.6 As a result of the pending merger transaction, Smart,through defendants
Stagg and Kahn and their officers, began dictating how RBAI should be operated, including creating legal overhead and operational constraints such as instructions to not pursue new contracts, loans or sales until the transaction closed. As a result of these constraints imposed by Smart, RBAI was becoming financially dependent on Smart. 3.7 TocoverRBAI's finanCial burden caused by the closing delays and
Smart's imposed operational constraints,. Smart made a series of loans consisting of cash to RBAltor operating capital. Each loan was secured by the RBAI Assets .. 3.8 The .merger transaction was finally scheduled to close on or about On that date, the parties executed the transaction docum~nts! but
September 30,2008.
Smart failed to pay the purchase price. 3.. 9 Instead, Smart demanded payment on the various loans made to RBAI
that were previously described in paragraph 3.7 above. The RBAlv. Smart Lawsuit and Bettlement 3.10 In December 2008. underapprovalJrom the Smart Board, which included
defendants Khan and Stagg, Smart sent a letiertb RBAl's member banks stating that if they gave any money to RBAI, Smart would sue them. That caused the RBAI member banlcs to immediately terminate their agreements with RBAI, effectively shutting down RBAI as a business. This caused the Smart shares to begin to collapse. Defendants
Khan and Stagg purposely destroyed the value of RBAI in which Smart shareholders had invested.
AMENDED COMPLAINT-Page 7
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3.11 On orabout January 9, 2009, RBAI and plaintiffs Rene Habit Gwendolyn
Babi, and Mark Silbernagel and other parties filed a complaint against Smart, RHA Acquisition,. St~gg Capital; Stagg, Khan, and other parties in Clark County Superior Court (Case No. 09.~2-000712) alleging breach ofcontracI, claims (hereinafter referred to as the "RBAI v.SmartLawsuit"). fraud, RICO,and other
3.12 SmGlrt commenced foreclosure on Us security interests related to the
loans,and on or about February9,2009,Smart at auction. purported to purchaSe the RBAI Assets
Contrary to defendant Stagg's and Khan's representation, this was the
original plan to acquire and resell RBA Assets only, rather than acquire RBAI asa company. Although the RBAI Assets secured more than $2 million in 10ans,Smart purportedly purchased the RBAI Assets for approximately $300,000, with no other bidder inVOlved in the auction, 3.13 RBAI subsequently refused to deliver the RBAI Assets to Smart on
grounds that the auction was fraudulent.
3.. 4 1
On or about July 15, .2009, RBAI, Smart, defendants Stagg, Khan and to settle the RBAI v,Smart Lawsuit A true and correct copy of the
others,agreed
parties' agreement is attached hereto as Exhibit 1 and is incorporated herein by this reference (referred to herein as the "Settlement Agreemeni").At the time of the
Settlement Agreement, the shares of Smart were valued at approXimately $0.. 2 per 1 share. 3.15 In the Settlement Agreement, the parties. s.tipulated that the previously and closed as of September 30, 2008. another $647,531
negotiated merger transaction wascempletee
Smart agreed to immediately deliver $640,704 to plaintiffs.and following execution of the Settlement Agreement. 3.16 In addition, Smartagre.edtoissue
251'. 26
approximately Seven million shares of
•stock divided amongRBAl's various creditors alldemp!oyeestand
AMENDED COMPLAINT-Pa<>e 8 ::>
plaintiffs .Rene Babi,
MILLER BUSINeSS) .AW . 1012 SW KlNG AVENVE, #101
PmU1.AND,
OR 97205 (503) 764-1453
Gwendolyn Babi and Mark Silbernagel, as valuable consideration for the Settlement A.greement. 3.17 The Settlement Agreement further provided that the loans previously
made to RBAI by Smart (which are described in paragraph 3..7) and other substantial liabilities of RBAI to third parfycreditors (as agreed in the 2007 Memorandum of these loans and
Understanding) were to be assumed by RBA Acquisition..Although other liabilities were to be assumed by RBAAcquisition,
Smart took ownership of the
ReAl Assets thereby leavIng RBA AcqUisition without value and the ability to pay without support from Smart.
3.18 The Settlement Agreemenffurther
provided (1) th,atSmart satisfyRBAl's
outstanding debts to Barry Forman in the apprOximate amount of $280,000, and indemnify plaintiff Rene BabI, hold him harmless and defend him as personal guarantor of the debts; and (2) that RBA Acquisition satisfy RBAt's outstanding debts to Bank of America in the. approximate amount of $150,000 and, indemnify, hold harrnlessand defend plaintiffs ReneBabi,Gwen Babiand Mark SilbernageL
3.19 At theexecufion
of the Settlement Agreement, Smartdel.ivered the first
cash payment of $640,704 to plaintiffs, but has failed to deliver the second cash payment of $647,531-
Smart issued the agreed shares to plaintiffs in September of 2009. Atthe
time of issuance, the shares were valued at approximately $0 .11. per share.
RBA Acquisition has not satisfied RBArs debts owed to Bank of America
and Smart has not satisfied debts owed to Barry Forman, and has thus far, failed and refusedto indemnify, defend and hold plaintiffs harmless from the debts.
During the Settlement Agreement negotiati.ons, defendants Stagg and RBAI business
Khan represented to plaintiff Rene Babi that Smart would rebuildtne
within RBA Acquisition using theHBAI Assets that it acquired from R8AL by integrating
AMENDED COMPLAINT-- Page 9
MILLER BUSINESS LAW 1012 SWKJNGAVENlJE.lllOl POR.·n_A"D, OR 97205
it with Smart's subsidiaries resulting in substantiaigrowth
of Smart's value and
substantially increase the value Qfthe shares given to plaintiffs as part of the Settlement Agreement. smart had its subsidiary, CeSI, hire plaintiff Rene Babiasa further develop theRBAI Assets acquired in the RBAIAcquisition. consultant to
However,plaintiff
Rene Babl never received the agreed upon funding from Smart and staffing required to rebuild the technology (RBAIAssets) and the prior RBAI business mage!. When plaintiff Rene Babi had an opportunity to acquire an operationa! version of the complete RBAI system at ViaWest (RBAI'sformer computer hosting entity). defendant Stagg refused to acquire it; thus, ensuring that theRBAI bUsiness coulcfnot be resurrected in any near
Based on this and other actions alleged herein, the Smart shares
became worthless as Smart could not show that it had a viable asset on its books. The plaintiffs were induced into entering the Settlement Agreement that, unbeknownst to
them, was based on a plan by defendants Kahn and Stagg to defraud them out of the value of the deal. ManipulafionofSmart by.Defendants Stagg. Khan, Stagg Capital, SV Funds and Trainor
17 ! Island 19 "0 L. 21 22
Prior to and after taking direct control of Smart in 2008, defendants Stagg defendant SV Funds and Stagg Capital (both
Khan,. using money/capitalftom
owned by defendant Stagg), and with the knowledge and assistance of defendant Trainor,dictated that Smart enter into numerous loans with Stagg, Khan, Stagg Capital, and SV Funds. On information and belief, these loans totaled over $24 million and
carried an average effective annual interest rate, including dollar for dollar stock consideration, of over 86%. 3.24 On information and belief, since its investment in Smart, less than $2 million
of these loans was ever made available to Smart for its necessary business operations and expenses, as defendants Stagg and Khan, with the assistance and
COMPLAlNT-- Page 10
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defendant Trainor, dictated that the majority of the funds be used for acquisitions, loan repayments to defendants Stagg Capital and SV Funds, loans to other cdmpanies,and
operating capital for Smart's subsidiaries. No money was invested orprdvided td6mart after the execution of the Settlement Agreement-Essentially, Smart a shell company. 3.25 Despite the existence. of other, more beneficial funding sources that would defendants were making
have been available to Smart, defendants stagg and. Khan forbade Smart from taking of the more beneficial funding sources and, to the detriment of Smart, dictated
gadvantage 9
that Smad enter into the loans alleged in paragraph 3.23 above.
Defendants Stagg and Kahn, with the assistance and knowledge of to take direct
defendant Trainor, used their authority as controlling directors of$mart
control of Smart's subsidiaries, CCSland MIT. On information and belief, income derived 13 14 · 1J by MIT was diverted to CeSI by defendants Stagg and Kahn with the assistance .and knowledge of defendant Trainor. This. led to the demise of MIT, which up to that time was the most profitable subsidiary of smart. DefendanfsStagg and Kahn, with the assistance knowledge Qf defendant Trainor, cal.lsecl CCst to assume the operating expenseS.of Smart, SV Funds,. and other entities controlled by defendant Stagg. EXamples inClude cesl paying employee's salaries and rents on behalf of BV Funds and other Stagg
controlled entities that hadhO relationship with GOSl's business. GeSrs assumptlohof those operating expenses prevented the accumulation of necessary operating capital for GGSI, which led to its demise, and that of its parent corporation, Smart. Defendants Stagg Khan were usingSl11art's money to fund theIr private companies While destroying the Smart subsidiaries, Ouring their manipulation of the Srnartsubsidiaries, defendants·Stagg and Kahn, on numerous occasions, represented to smart's managernent.,and also to plaintiffs as shareholders, that they would continue to fund Smart whenever the need arose "'Dreier
bringsuQ¢$$$, ~an4
growth fo Smart anll ilS shareholders.
MILLER BUSINESS LAW 1012 SWKINGAVE\'VE, #10]
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However, defendants Stagg and Khan significantly undercapitalized Smart and exposed shareholders, including plaintiffs, to significant risk of loss. knowing the corruption being conducted by defendants. 3.27 In or about March of 2009, prior to entering into the Settlement Agreement, Plaintiffs had no way of
defendants Stagg and Khan took control of the Smart E oard of Directors. In June of 2009, defendants Stagg and Kahn, with the assistance of defendant Trainor, removed Smart's CEO in order to carry out their pJan to sabotage Smart. They fired the CEO under a disputed claim that he wrongly took money from Smart. The CEO filed a lawsuit alleging his innocence, and claiming that defendants Stagg and Khan had defrauded the Smart investors, and were executing a plan to destroy Smart for their own gain by driving down the value of Smart stock, making it worthless. 3.28 From June 2008 to July 2009, defendants Stagg and Khan bought and sold
Smart securities. Defendants used their possession of material insider information about the true status of Smart's financial and operational future to buy and sell Smart securities prior to this information being made public. The information, which included defendants Stagg and Khan's intent to remove assets from Smart, was material in that it was
substantially likely that a reasonable investor would consider such information in making
18 investment decisions.
Iransf~Lof Assets out of Smart by Defendants Stagg, Khan, Stagg Capital, SV Funds, Cooke, Looney, Gottbetter, and Trainor After the Settlement Agreement, plaintiff Rene Babi was hired as a . consultant by CCSI, and was included in corporate email communications and in Smart corporate meetings that included defendants Stagg, Khan, and employees and 3.29
management from all of Smart's subsidiaries. Plaintiff Rene Babi was privy to corporate emails, and attended corporate and other meetings from July 2009 through February 2010, with defendant Khan and the CEOs of other Smart subsidiaries which revealed to
AMENDED COMPLAINT -- Page 12
tv1lLLER BUSINFSS LAW 1012 SW KING AVENlJE, #101 PORTLAND, OR 97205
him a plan of deception and fraud against the RBAI owners and the shareholders. 3.30 For example, as earlyss
Smart investors and
March 2009, defendant Stagg told. his
CEOs that He
Smart was doomed
and the investors and sharehelders his GEOs when theyask€d
would .lose everything.
repeated thatstatementt.o theireernpensation.
fer snares in Smart as
He said that there was a note eomingdueat
the end of 2009 in
which Smart owed SV Funds over $21 million (the "$21 miUion n.ote"). SV Funds had borrowed this amount from 3Altemative assets of Smart as collateral for theSV Funds, a Swiss hedge fund, and had put up the Funds debt.. Defendant Stagg, .on information
and belief, informed his CEOs that Smart WOUld.not be able to pay SV Funds, and that he would take control of Smart to pull the assets .out .of it so that 3 Alternative eouldn.ot .get the assets. the Settlement Agreement. TheRBAI Funds
owners did not know about his plans at the time of
Defendant Stagg knew that the •shares issued to the RBAI that Smart was doomed.
owners and other Smart creditors were worth!ess,and 3.31 After the Settlement Agreement, Khan that Smart fermeda would be. placed.
plaintiff Rene Babi was told by defendant which the RBAI Assets liabilities pUfsuantto that RBA
company called "AuforaLabs".in
In addition, "Aurora Labs"was Agreement.
to aSHumeRBAl's
Prior to this revelation,it
Aequis.ition, wholly .owned by Smart, would take possession oftheRBAI
Assets. Then in
October 2009, defendant Khan told plaintiff Rene Babi that Aurora was formed to take possession of the. RBAI Assets and would be owned by defendant Stagg as his private company.
Then in Nevember
2009, ata
meeting in Chicago,
Khan toldp!aintiff and that defendant
Rene Babi that the plan for the demise of Smart was being executed, Khan had $1.2 rnillionef his own money, and defendant Stagg had they both
$3 million of his own money,
AMENDED COMPLAINT-- Page 13
invested in Smart and Smart's subsidiaries,and
"'fILLER BUSINESS LAW 1012 SW KING AVENUE, #101
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were going to take action to get their money back at the expense of Smart, Smart subsidiaries and its Investors, including 3.Alternative Funds 3.33 In November 2009, plaintiff Rene Babi received a formal request to
transfer RBAI Assets from Smart to defendant Aurora (even though plaintiff Rene Babt's interest in the. RBAI Assets was previously transferred to Smart via the merger). This request .was accompanied with pertinent documents to be Signed from the patent attorney. Plaintiff Rene Babi contacted the patent attorney and asked for legal
documents showing the true ownership .ofAurora. Afterthe patent attorney said she had nothing showing the ownership of Aurora, she and plaintiff Rene Bah! made a conference call to defendants Khan, Stagg, Trainor, andCiherey, to verify the
ownership .of Aurora. The defendants declined to provide the information and instead instructed pJaintiffRene Bahi to halt all action, and immediately return all documents to Smart headquarters via FedEx.. Plaintiff Rene Babf complied. 3.34 In December 2009, at a meeting with defendant Khan at the Smart office,
14 I-Khan .J
fold plaintiff Rene Bah! that in November 2009, defendant Stagg had created a
private company called MAS Glopal, and that that company was the true owner of Aurora. 3.35 On or about October 19, 2009, Smart madeal18K filing with the Securities
and Exchange Commission that included financial information that is patently false and fraudulent-Both defendants Khan and Staggadmlttedto plaintiff Rene Babi and other
Smart CEOs that the Smart Bt< report was fraudulent, that they didn't want to. sign it, and that they would hire defendant Ciberey to be President of Smart so he would sign the BK report DefendantCiberey, on information and belief, was a retired postal worker, with no credentials or experience with publicly tradedcorporatefisca! or management
'22 23
affaIrs. Defendants Khanan.d Stagg often said to plaintiff Rene Baht and the other Smart CIEOs that Ciberey "was a fool" and would do anythjng they toldhim,and
COMPLAINT-- Page 14
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him to sign the fraudulent BK report that defendant Trainor devised. Defendants Khan 2 3
and Stagg were controlling Smart and manipulating Ciberey in an effort to defraud the current and future Smart investors.
3.36 .Defendants Stagg and Kahn appointed defendant Ciberey as Smart
President and defendants Cooke and Looney as members of Smart's Board of Directors. On defendants Stagg and Kahn's orders, and with the knowledge of
defendants Ciberey, Looney, Cooke and Trainor, defendant Ciberey Signed Smart'sBK filing With the false and fraudulent financial information. The8K was filed to falsely lead the shareholders of Smart to reasonably believe that, under control of defendants Stagg and Khan, Smart was making progress as a going concern, and thereby to prevent the shareholders from voting to take control pf Smart. 3.37 Defendants Cooke and Looney were appointed to Smart's Board to
manage the shell company . Smart had now become for the purpose of benefiting
companies controUed by defendants Stagg and Kahn. 3.38 Following Smart's change in management and Board, a planned and systematic effort was made by defendants Stagg, Kflhn, Ciberey, Looney,Cookeand Trainor to place Smart and Smart. Subsidiary assets, including the RBAI Assets, into
Aurora (see the first attempt in paragraph 3.33 herein). Defendants, by their actions, disrespected the corporate form and sabotaged the efforts of others in the company and subsidiaries to grow their respective businesses. 3.39 Around mid-December 2009, after defendant Stagg partiCipated in the hiring of defendants Cooke and Looney as Directors of Smart,. Stagg resigned as director and ceased all communications with Smart, and its SUbsidiaries. On information and belief, he to.ld his CEOs that he needed to distance himself from the collapse of Smart. In late December,2Q09, defendant Khan told plaintiff Rene Babi that defendant Stagg's plan was to not sign anything, and to be gone during the time that the fraudulent
AMENDED COMPLAINT-- Page 15
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activities wou\d be taking place. P\aintiff Rene Babi shared that conversation timely the other PlaIn! .•Iffs.
ownershipof
.•••• ".iofPfmaIi<lIJ I1l!d .bef~, .,in. ....."Iy JljOuary 2(110, smart llssigneil its
CSI tociefendant MAS Global. Oninfnrmati.on and belief, MAS Global is defendant Stagg, and possibly by SV Funds, which .owed $21
an entitycontroUedby
miHi.ol1.onthe note to 3 Alternative Funds. While in Switzerland, plaintiff Rene Babi spoke with officers of 3 Alternative Funds,who said the $21 mIllion note was written off because Smart had no value left and no way to pay the. $21 million note.
Because the defendants never fHed properincome tax returns for Smartor treatment of the $21 milli.on note write-.off, there
its subsidiaries, including theptoper
may be significant tax!iabilities to Smart, and possible tax complications to plaintiffs as former owners of RBAL Plaintiffs have .been appr.oached by, and been in
communications with the IRS regarding Smart tax matters. 3.42 On or about January 7, 2010, Smart assets,including the RBA1.Assets
and other intellectual property were transferred to Aurora through .aforeclosure process in which defendant Gottbetter took possession .of treassets and transferred them to
Aurora. On information and belief, Gottbetter received shares in Aurora to pe.rfotm this transaction. 3.43 Both of these transfers were secretly performed by defendants without the executives of Smart and its
knowledge of most employees, shareholders,and
subsidiaries. The various entities continued to. operate as if there had been no change In ownerShip. 3.44 Cibereyare Through Aurora, on informati·onand belief, defendants Stagg, Kahn and now actively shopping the RBAI Assets to potential buyers. Defendant
Stagg indicated to plaintiff Rene Babi in a.dirmer meeting in Connecticutin December III 11/
AMENDED COMPLAINT-Page 16
MlLLER BUSINESS LAW
1012SW KlNGAvENUE. #101 PORTI."AND,OR97205 (503) 764-1453
2009 that the RBAI Assets shareholders 3.45
were worth over
$50 minion. Plaintiffs and other Smart
have been deprived of that potential value. Defendant Khan informed plaintiff Rene BaM that, for their part a$8oard defendant Cooke received over
members of Smart during the seqret transfer ofRBAIA.ssets, a director position in,Aurora, and defendant Looney
title and control
Smart (as a shell company). 3.46 In early
2010, after the secret transfer of .RBAI Assets, defendant Looney
call, that he wOLlld pay Smart's
told pl.aintiff Rene Babi and his attorney in. a conference
creditors and bring Smart's shares baCK to value by owning Smart and putting another company's operational business into Smart. Outside of that statement, defendant
Looney has made no attempt to communicate
with Smart shareholders
Smart, including the secret transfer of RBAI Assets to Aurora, nor has he performed any SEC required reporting. 3.47 The share value of Smart in September of
2008, the original merger
closing month, was near
$0.70 per share. Since that time, defendants have significantly
The value of the Agreement are
driven the share value down, which is currently near S;O.001 per share. Smart shares plaintiffs were issued as compensation now essentially worthless, for the Settlement
and the plaintiffs are being forced under threat of lawsuits to Stagg, Khan, and Smart would not uphold
pay Smart's creditors agreements
because defendants
to indemnify, defend, and hold plaintiffs harmless. IV. FIRST CAUSE OF ACTION Breach of Contract Against Defendants Smart, Stagg and Khan
Plaintiffs reallege and incorporate by reference paragraphs
1.1 through 3.47
above, as if fully alleged herein.
IJI JJI
AMENDED COMPLAINT-- Page 17
MILLER BFSlN"ESS LAW
1012 SW KING AVENUE, #101
The Settlement Agreement referenced above and attached hereto as
Exhibit 1 is a valid and enforceable contract. 4.3. By failing to pay the $647,531 that is due and payable following execution
of the Settlement Agreement, defendant Smart has breached the express terms of the Settlement Agreement 4.4. As a result of the breach, plaintiffs have suffered damages, and are
entitled to collect from defendant Smart the. amount at $647 ,531 plus damages and legal fees. 4.5. Defendants Stagg and Khan are also personally liable to plaintiffs as
directors and officers, who controlled, directed, participated in,and formulated the policies leading to the wrongful breachbf contract by Smart. 4.6. Defendants Stagg and Khan are also personally liable to plaintiffs .EiS a
result of their abuse and disregard of the corporate form for Smart as alleged in detail above, including commingling of corporate assets and leaving Smart undercapitalized, such that there is a unity of ownership and interest that the separateness of the corporation has ceased to exist and intentionally used the corporate form to violate or evade a duty, whose misconduct and disregard caused the harm to plaintiffs. 4.7. Plaintiffs are further entitled to recover prejudgment interest on the amount
due on the contract from the date the payrnent was due until paId at the applicable statutory rate.
Plaintiffs are further entitled to recover their attorney fees incurred herein
as provided for in the Settlement Agreement III 1/1 III 11/
MIU£RBuSINESS L\w l012SWKrNo AVENUE,#101 PORTLAND, OR 97205 (503) 764-1453
AMENDED COMPLAINT-- Page 18
Breach of the Implied Duty of Good Faith and Fair Dealing Against Defendants Smart, Stagg and Khan 5.1. Plaintiffs reallege and incorporate by reference paragraphs alleged herein. 1.1 through 3.47
above, asiffully 5.2.
The Settlement Agreement referenced above and attached hereto as Exhibit
1 constitutes a valid and enforceable contract
Every contract in the State of Washington carries withitanimplied
of good faith· and fair dealing. 5.4. Defendant Smart has breached the implied duty of good faith and fair
dealing by undertaking
the course of conduct described .above which Was intentionally
deSigned to drive down Smart's stock price such that plaintiffs were unable to receive the
benefit of their bargain. 5.5. As a result of the defendants' breach, plaintiffs have suffered damages, and be proven at trial. to plaintiffs as
are entitled to collect from defendant Smart an amounlto 5.6. Defendants Stagg .aad Khan
are also personaHyliable
directors and officers, who controlled •.directed, participated in, andfort11ulated the.poHcies leading to the.wrongfuLpreach 5.7. Defendants oftheimplied duty of good faith and fair dealing by Smart. liable to plaintiffs as a
Stagg and Khan are also personally
result of their abuse and disregard
of the corporate form for Smart as alleged in detail and leaving Smart undercapitalized, and Interest that the separateness.
above,includingcommingHngofcorporateassets such that there is a unity of ownership
has ceased to exisfandintentionally
used the corporate form to violate or harm to plaintiffs ..
evade a duty, whose misconductans 5.8. Plaintiff$are
disregard causedthe
further entitled to recover their attorney fees incurred herein as
prOVided for in the SettlementAgreement.
AIviENDED COMPLAINT-- Page 19
1012 SWKlNGAvENUE, #10] PORTLAND, OR 97205
Tortious Interference with Contractual Relationship Against Defendants Stagg and Khan 6.1. PlaintiffSreallege and incorporate by reference paragraphs 1.1 throQgh3.47
above, as<iUully alleged herein. 6.2. The Settlem~ntAgfeement referenced above and attached hereto as Exhibit
1 constitutes a valid and.enforceable contract
6.3. Defendants Khan and Stagg had knowledge of the relationship between
Smart and plaintiffs. Defendants·Khan and Stagg, as officers or directors ofSrnart,. are.personally
106.4. 11 12
liable for inducing Smart to violate and breach .itscontractual relations with plaintiffs. 6.S. Defendants Khan and Stagg, as.officersordirectors of Smart, are personally
liablefQf acting in bad faith.
proximate result of defendant Khan and Stagg's conduct, plaintiffs
suffered damages in an amount to be proven attrial.
Plaintiffs are further entitled to recover theIr attorney fees incurred herein as
provided for in .the Settlement Agreement VII; FOURTH CAUSE OF ACTION Promissory Fraud Against Defendants Smart, Stagg and Khan 7.. . 1 Plaintiffs .fe-allege and incorporate by reference paragraphs 1.1 through 3.47
above, as if fully alleged herein. 7.2. Defendant Smart represented to plaintiffs that it intended to perform its
obligations under the Settlement Agreement. In addition, defendants Stagg and Khan omitted material information about their plan to drive down the share price of Smart stock. 11/ III
AMENDED COMPLAINT-- Page 20
.Mll~LER BUSlNESS LAW
1012SWKINoAvENOE. #101 PORTLAND, OR 97205
Defendant's representatiqos were material to plaintiffs' decision
and accept Smartshares aspartiai compensation.
') ~ 3
theSettlementAgreement
Defendant's representations were false.in that defendant had no intention of
performing, and which representations were made in an effort to induce plaintiffs to enter .intothe Settlement Agreement 7.S. Defendants intended, and plaintiffs were entitled to rely upon the
misrepresentatiomvas plaintiffs were. ignorant of the deceptive and fraudulent character of defendant's representations. 7.6. Plaintiffs relied on the representations, believing them to be true, and,!n
reliance, entered into .the Settlement Agreement and performed their obligafionsunder the Settlement Agreement. 7.7. Asa direct and prOXimate result of Ihefraud committed by defendant,
plaintiffs have suffered, and are entitled to collect from defendant Smart, damages and economic lOss in an amountto be provenattriaL 7.8. Defendants Stagg and Khan are also personally liable to plaintiffs as
directors and officers, who controlled, directed, participated in,.and formulated the policies leading to the fraud perpetrated by Smart. 7.9. Defendants Stagg and Khan are also personally liable to plaintiffs as a detail
result of their abuse and disregard ofthecorporateformforSmartasaIlegedin
above, Including commingling of corporate assets and leaving Smart undercapitalized, such that there isa unity of ownership and interest that the separateness of the used the .corporate form to violafeor
corporation has ceased to existandintentionally
evade a dUty.,whose misconductand disregard caused the harm to plaintiffs. til !II
III 11/
AMENDED COMPLAINT-- Page 21
"'fILLER BUSINESS LAW
1012SW KING AVENUE,#101
1 2 3 4 5 8.1.
Fraudulent Transfer (RCW 19.40.041(a) (1)-{2)) Against All Defendants Plaintiffs r~alIege and incorporate byreference paragraphs 1.1 through 3.47
above, as if fully alleged herein. After seizing control of Smart, defendants Kahn •and stagg ultimately
68.2. 7 8 9 10 11
transferred the RBAI Assets to .Aurora with the. approval and assistance of defend ants Ciberey, Looney, Cooke,Trainor a~d Gottbetter. In addition, the remaining assets Of
Smart Weretransferred to Smart subsidiary CCSl,and those interests in eesl were then transferred to defendant MAS Global. 8.3. The transfer of fheRBAI Assets and otherassets out of Smart was done in
an effort to defraud the plaintiffs and other creditors of Smart, 13 14
a Id performed
knowledge of, orby,. plarnUffsandmost employees, shareholders, an executives of Smart and its subsidiaries. 8.4. Defendants' intent to defraud .is .demonstrated by, am rIg other things, (8)
stagg and Kahn, both insiders of Smart, transferring Smart's RB I Assets and other assets foother entities controlled by defendants Stagg and Khan; b} defendants Stagg and Khan retaining possession .or control of the RBAI Assets and ther assets after the transfer; (c) defendants transferring, toalarge extent, aU.ofSrnart'sassets; .and(d) Smart becoming insolvent shortly after the transfers Were made. 8.5. Smart received inadequate value in .exchange for the transfer of the RBAI remaining assets
Assets and other assets, essentially rendering Smart insolvent. Sma's
were unreasonably smallin relation to the business or transactions entered into following the transfers or Smart reasonably should have.believed that it would Incur debts beyond its ability to pay as.they became due. III II!
AMENDED COMPLAINT-- Page 22
MU.LEI!. BUSINESS LAW
1012 SW KING AVENUE, #]01 PORTLAND, OR 97205
As a direct and proximate result of defendants' fraudulent transfers as plaIntiffs have suffered, and areentitl.edto collect from defendants,
aHegedherein,
damages and economic loss in .anamount to be prov\.~n tria!. at 8.. . 7 Defendanis$tagg, Khan, CIberey, Looney, Cooke and Trainor are also
personally riable to plaintiffs as directors and officers, who controlled, directed, partiCipatedin,.and formulated the policies leading to the fraud perpetrated by Smart 8.8. Oefendants Stagg, Khan. Ciberey, Looney, Cooke and Trainor are also
personally liable to plaintiffs
resullof their abuse and disregard of theborporate commingling of corporate assets unity of ownership and interest
form for Smart as alleged in detail above,includIng
and leaving Smart undercapitalized, such that thereisa
that the separateness of the corporation has ceased to exist and intentionally used the corporate form to violate ore\lade a duty, Whose miscond uet and disregard caused the harm to plaintiffs. 8.9. Pursuant to RCW 19.40.-, .71, plaintiffs are also entitled to avoidance of the 0
fraudulent transfers, attachment of the assets transferred, and an injunction against further transfer.
IX. SIXTH CAUSE OF ACTION
Securities Fraud (15 USC § 771 (a) (1» Against Defendants Smart, Stagg, Khan, Ciberey and Trainor 9.1. Plaintiffs reallege and incorporate by reference paragraphs 1.1 through 3.47
In connection with the Settlement Agreement, defendants Smart, Stagg,
Khan, and Trainor sold securities, as defined in the Securities Act of 1933, to plaintiffs in or 24 about September, 2009.
III 11/ 1/1 1/1
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MILLER BUSINl'.% LAW
1012 SW KING AVENUE,#101
Defendant Smart and defendants Stagg, Khan, Clberey, and Trainor, as
executive officersandlor directors, based. onlmormation and·belief, directly and actively participated in the solicitation of selling the securities. 9.4. Defendants failed to register the securities with the Securities and
Exchange Commission as required under the Securities Actpf 1933 and the securities 6 7 8 9 10 11 12
were not othelWiseexemptfrom 9.. . 5
Pursuant to 15 USC § 771, plaintiffs are entitled to recover the
consideration that was paid for the securities sold plus interest thereon, to the date on which they recover, plus their costs and reasonable attorney fees incurred herein, minus the amount of any income received on the securities, or, in thealtemative, for damages in an amount to be determined at trial.
Securities Fraud (15 USC § 771(a) (2)) Against Defendants Smart:, tagg, Khan, Ciberey, and Trainor S 10.1. Plaintiffs reallege and incorporate by reference paragraphs 1.1 throughS.47 above,·as if fully alleged .herein.. 10.2. Defendants Smart, Stagg, Khan, Ciberey, and Trainor offered, SQld, or solicited for financial gain the securities sold in the Settlement Agreement to the plaintiffs toplaintlffs on or about September, 2009. 10.3. Defendant Smart and defendants Stagg, Khan, Ciberey, and Trainor, .as b.elief, directly and actively
executive· officers and directors, basedoninformationahd
participated in the sale ofthe securities. or at aUrelevant times, were contrOlling persons having direct influence and control over individuals who violated the Securities Exchange Act, including defendant Trainor.
/1/ IIJ
AMENDED COMPLAINT--Page24
MILLER BUSL\lFSSLAW
1012 SW KING AV£Nl.JE, 11101 PORTLh'<D,OR97205
10.4. The communication to plaintiffs included untrue statements of a material fact or omitted to state material facts necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
10.5. Defendants failed to provide the plaintiffs, who are unaccredited investors,
with the disclosures and information required by the Securities Act of 1933, and failed to take appropriate steps to prevent such violations.
10.6. Defendants Stagg and Khan made statements to third parties prior to the
Settlement Agreement that they were going to "gut" Smart. Defendants did not provide this information to plaintiffs. 10.7. Defendants' false or misleading statements or omissions concerned material
facts necessary for plaintiffs to make an informed decision about acquiring Smart securities. 10.8. Plaintiffs exercised reasonable care and could not have known of such false or misleading statements or omissions. 10.9. Pursuant to 15 USC § 771, plaintiffs are entitled to recover the consideration that was paid for the securities sold plus interest thereon, to the date on which they recover, plus their costs and reasonable attorney fees incurred herein, minus
the amoul1tofany
income received on the securities, or, in the alternative,. for damages
Securities Fraud (Rule 10(b) (5) Against DefendantsSmartlStagg, Khan,Cibereyand Trainor 11.1. Plaintiffs re;alIegeand ·incorporafeby·reference paragraphs 1.1 through 3..47 above, asiffullyalleged herein.
11.2. Defendants Smart, Stagg, Khan,Cibereyand Trainor directly or indirectly, in connection with the purchase and sale of securi"ies, by
AMENDED COMPLAINT-- Page 25
use Of the means and
M1LLERBUSJb']2SS LAW
1012 SW KING AvEl';VE, #101 PO!l.TLAND,OR97205 (503) 764-1453
instrumentalities of interstate commerce or of the mails, have: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts and/or
omitted to state material facts necessary in order to make the statements made, in light of the circumstances under Which they were made, not mjsleading;or(c) engaged in acts,
practices and courses of business which operated as a fraud or deceit upon plaintiffs, purchasers of the securities.
11.3. As part of .and in thefiJrtherance of their scheme, defendants directly and
indirectly breached a dUty to provide required statutory disclosures about Smart. Defendants caused an 8KfiJing to be made which contained false and inaccurate information. Defendants misrepresented Smart's financial and operational future to plaintiffs, who are unaccredited shareholders, under circumstances in which it was reasonably foreseeable that plaIntiffs would use the information as a reasonable investor to decide whether to acquire Smart securities, Defendants withheld this information for
their own benefit and the benefit of their other companies.
11.4. The withholding' of statutorily required disclosures to plaintiffs and the.
misrepresentation of Smart's financial and operaiionalinformation' plaintiffs'purchaseQfSmart securities.. was material to
Defendants conduct demonstrates intent to manipul.ate, deceive, or defraud
11.6. At all relevant timeS, defendants Stagg and Khan were contrOlling persons haVing direct influence and .control over individuals who violated the Securities Exchange Act of 1934 and Securities Act of 1933,includingqefendants Ciberey and Trainor.
Defendants Stagg.and Khan knew, or recklessly disregarded the fact, that individuals were likely to engage in, or were commitiing,actsconstituting a violation of the securities acts
and defendants failed to take appropriate steps to prevent such violations, or defendants Stagg and Khan knowingly or recklessly failed to establish, maintain or enforce
AMENDED COMPLAJNT-- Page 26
MilLER BUS.fl'!ESS LAW 1012SW KING AVENUE. #101 PORTLAND, OR 97205 (503)764-1453
compiiance policies and procedures required under the securities acts and such failure
substantiany contributed to or permitted the occurrence of the such viQ\ations. 11.7. Defendants' misstatements and/or omissions caused plaintiffs damages. Smart's share price at the time of the Settlement Agreement was $.11 per share. When defendants filed the fraudulent 8K statement on October 19, 2009, the share value was $.04 per share. Plaintiffs would not have acquired shares in Smart had they known all material facts. 11.8. Pursuant to 17 CFR 240.1 OB-5, plaintiffs are entitled to recover the consideration that was paid for the securities sold piUSinterest thereon, to the date on which they recover, plus their costs and reasonable attorney fees incurred herein, minus the amount of any income received on the securities, or, in the alternative, for damages in an amount to be determined at trial. XII. NINTH CAUSE OF ACTION
Washington State Securities Fraud (RCW 21.20.010) Against Defendants Smart Stagg, Khan, Ciberey and Tra.inor
12.1. Plaintiffs reallege and incorporate by reference paragrap~s 1.1 through 3.47 above, asiffuUyalJeged herein. 12.2. Defendants, directly or indirectly,.in connection with the purchase and sale of seCurities: (a) employed devices,. schemes and artifices to defraud; (b) made untrue statements of material factand omitted to state material fapts necessCiry{narder to make the statements made, in light of the circumstances under which they were. made, not misleading; and/or {c}engaged in acts, practices and courses of business which operate as a fraud or deceit upon plaintiffs,.purchasers of the securities. 12.3. As part of and in the furtherance of the scheme, defendants, directly and indirectlY,breached their fiduciary duty to disclose as required by statute and
misrepresented Smart's financial and operational lui ure to unaccredited shCireholders,
AMENDED COMPLAlNT-- Page 27
lYfILLER BUSINESS LAW
1012SWKING AVF.NUI',#101
POIU1-AND, OR 97205
plaintiffs, under circumstances in which it was reasonably foreseeable that plaintiffs would use the information as a reasonable investor to decide whether to purchase Smart securities. Defendants withheld this information for tneir own benefit and the benefit of their other companies.
12.4. The withholding of statutorily required disclosures to plaintiffs and the
misrepresentation of Smart's financial and operational. expectation Was material to plaintiffs'purchaseofSmart securities.
12.5. Defendants intended to manipulate, deceive, ordefraud plaintiffs.
12.6. Defendants' misstatements and/or omissions caused plaintiffs damages. 12.7. Pursuant to HCW 21.20'430(1), plaintiffs are entitled to recover the
consideration that was paid for the securities purchased, together with interest at 8% per annum from the date of purchase to the date of recovery, plus their costs and reasoeable attorney fees incurred herein. XIII. TENTH CAUSE OF ACTION
Washington Securities Fraud (RCW21.20.140) Against Defendants Smart, Stagg. Khan, Ciberey, and Trainor
13.1. Plaintiffs reallege and incorporate by reference paragraphs 1.1 through 3.47
13.2. Defendants sold securities to plaintiffs. on or about September of 2009. 13.3. Defendants directly and actively participated in the solicitation of selling the
13.. . Despite the fact that the interests sold.to plaintiffs weres.ecurities 4
were unregistered and were not exempt from registration under the Washington
Securities Law,defendants faiiedto register the .securities with th$Securities the State of Washington. !II Ilf
AMENDED COMPLAINT-- Page 2&
MILLER BUSINESS L\ w 1012 SW KINOAvENlJE,lilOl
PORTI.AND, OR 97205 (503) 764-1453
13.5. Pursuant to RCW 21.20.430(1), plaintiffs are entitled to recover the consideration that was paid for the securities purchased, together with interest at 8% per annum from the date of purchase to the date of recovery, plus their costs and reasonable
attorney fees incurred herein. XIV. ELEVENTH CAUSE OF ACTION Civil RICO Against Defendants Stagg, Khan, Ciberey and Trainor
14.1. Plaintiffs reallege and incorporate by reference paragraphs 1.1 through 3.47
14.2. Defendants Stagg, Khan, Ciberey and Trainor are associated with an
enterprise engaged in interstate commerce that consists of Smart and its subsidiaries and lenders. Defendants have operated the enterprise using a pattern of racketeering activity, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 USC §1962(c).
14.3. Defendants' pattern of racketeering activity includes, but is not limited to: (a)
16 17 mail fraud in violation of 18 USC §1341; and (b) wire fraud in violation of 18 USC § 1343.
14.4. Plaintiffs have been injured in their business or property as a result of the
defendants' pattern of raCKeteeringactivity in an amounttobe proven at trial.
14.5. Pursuant to 18 USC§1.964(c), plaintiffs are entitled to an award of treble
damages,in addition
costs and reasonable attorney fees incurred herein. PRAYER FOR REliEF
23 24 25 16
On pla.intiffs·First Clairnfor Relief, a judgrnentagainstdefendants
Scott Stagg and Amir Khan .inthe arnountof$647,531,plus
prejudgment interest thereon
at the applibable statutory rate, together with an award of plaintiffs' reasonable attorney
AMENDED COMPLAINT-- Page 29
IvfILLER BUSINESS LAW 1012 SW KING AVENUE, # 101 PORTLAND,OR97205 (503) 764-1453
On plaintiffs' Second Claim for Relief, a judgment against defendants Smart,
Scott Stagg and Amir Khan in an amount to be provel1 at trial, together with an award of plaintiffs' reasonable attorney fees;
On plaintiffs' Third Claim Tor Relief, a judgment against defendants Scott
Stagg andA.mir Khan in an amount to be proven at trial, together with an award of plaintiffs' reasonable attorney fees;
On plaintiffs' Fourth Claim for Relief, a judgment against defendants Smart,
Scott Stagg and Amir Khan in an amount to be proven at trial On plaintiffs' Fifth Claim for Relief, a judgment against all defendants in an
amount to be proven at trial, and, pursuant to RCW 19.40.071, an avoidance of the fraudulent transfer of assets, attachment of the assets transferred and an injunction against further transfer;
On plaintiffs' Sixth Claim for Relief, a judgment against defendants Smart,
Scott Stagg, Amir Khan, Michael Ciberey and Brian Tralnor in an amount to be proven at trial, together with an award of plaintiffs' reasonable attorney fees;
On plaintiffs' Seventh Claim for Relief,a
judgment against defendants
Smart, Scott Stagg, Amir Khan, Michael Ciberey and Brian Trainor in an amount to be proven at trial, together with an award of plaintiffs' reasonable attorney fees; h. 20 21 22
On plaintiffs' Eighth Claim for Relief, a judgment against defendants
smart, scott stagg , Amir Khan, Michael Giberey and Brian Trainor in an amount to be proven at trial, togethecwlthan award of plaintiffs' reasonable attorney fees; i. On plaintiffs' Ninth Claim for Relief, a judgment against defendants Smart,
Scott Stagg. Amir Khan, Michael Cibereyand Brian Trainor in an amou.nt to be proven at
trial, plus prejudgment interest thereon at 8% per annum, together with an award of plaintiffs' reasonable attorney fees;
AMENDED COMPLATNT-Page 30
MILLER 1012
SW KING AVENUE, #1 0 j PORTLAND, OR 97205
(5(3) 764-1453
On plaintiffs' Tenth Claim for Relief,ajudgment MichaelCiberey
against defendants to
Scott Stagg, AmirKhan,
and Brian Trainorlnanarnount
bepwvenat
awa'rd
trjal,. plus prejudgment interest thereon at B% per annum, together wilhan
plaintiffs' reasonable attomeyfees;
On plaintiffs' Eleventh Claim for Relief, a judgment against defendants Scott
Stagg, Amir Khan, Michael Ciberey and Brian Trainor in an amount to be proven at trial, trebled pursuant to 18 USC §1964(c), attorney fees; together with an award of plaintiffs' reasonable
An award of plaintiffs
costs of suit and disbursements
just and reasonable; and
For such other and further relief as the court maydeemjustand day of June. 2011, MILLER BUSINESS LAW
AMENDED CUMPLAINT·· P~ge 31
IOl2 SW KmG AVTh'lJE,#10! PORTLAND, OR 97205 (503) 764-1453