The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge
The Securities and Exchange Commission ("SEC") complains that Roderic Lee Boling, III, Anna August Boling, Jeffery Scott Mills, and Direct Results of Sweetwater, LLC, engaged in a "pump and dump" scheme by way of nationwide broadcasting of fraudulent voicemail messages in 2004 and thereby violated Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. Jeffrey Mills and Direct Results of Sweetwater, LLC ("Mills Defendants") move to dismiss the SEC's Complaint for failure to state a claim upon which relief can be granted and for failure to plead fraud with the requisite particularity, pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. The Mills Defendants proffer an overly-stingy reading of the SEC's Complaint. Their motion will be denied.
The Mills Defendants accurately quote the paragraphs in the Complaint that outline the telemarketing scheme allegedly engaged in by the Bolings and the three paragraphs that name the Mills Defendants specifically. See Mem. of Points and Authorities in Supp. of Defendants Mills' and Direct Results' Mot. to Dismiss ("Mills Mem.") at 3-4. They argue that the Complaint against them fails to plead fraud with particularity and fails to allege sufficiently that (i) the Mills Defendants made material misstatements or omissions of fact; (ii) the Mills Defendants acted with the requisite scienter; and (iii) the Mills Defendants had involvement in the underlying scheme of the other Defendants. See Defendants Mills' and Direct Results' Mot. to Dismiss [Dkt. #8].
A description of the Complaint allegations may put this issue in perspective.
* ¶ 1 alleges a scheme to defraud the public through the nationwide broadcasting of fraudulent voicemail messages touting the stocks of at least six small, thinly-traded companies. It alleges that Roderic Boling hired a Telemarketer to place the messages, recorded by Roderic Boling's then wife, defendant Anna Boling.
* ¶ 2 alleges that the "scheme was designed by the Defendants and others . . ., acting in concert, to enable several individuals, including defendant Mills . . . to profit by selling their shares at the fraudulently inflated prices."
* ¶ 3 alleges that the calls were successful--noting that the trading value of touted stocks was increased by approximately 1,500%.
* ¶¶ 4-10 identify the parties and establish venue and jurisdiction.
* ¶¶ 11-16 identify the relevant small thinly-traded companies (American Multiplexer Corporation ("AMUT"), Donini, Inc. ("DNNI"), 5G Wireless Communications, Inc. ("FGWC"), Innovative Food Holdings, Inc. ("IVFH"), Maui General Store, Inc. ("MAUG"), and Power3 Medical Products, Inc. ("PWRM")).
* ¶ 17 alleges that Mr. Boling contacted the Telemarketer in July 2004 to set up the campaign.
* ¶ 18 alleges that the Telemarketer, at the direction of defendant Roderic Boling, broadcast voice messages concerning the thinly-traded companies, as recorded by Mrs. Boling.
* ¶ 19 alleges that the Telemarketer ceased broadcasting after the scheme became the subject of Internet chat.
* ¶ 20 alleges that Mr. Boling, the Telemarketer, and Mr. Mills traveled together to a Mississippi casino, where Mr. Mills retrieved a duffle bag filled with cash, which he gave to Mr. Boling, and from which Mr. Boling took ...