United States District Court, D. Colorado
OPINION AND ORDER DENYING MOTION TO DISMISS
S. KRIEGER, CHIEF UNITED STATES DISTRICT JUDGE
MATTER comes before the Court pursuant to the Relief
Defendants' Motion to Dismiss (# 47),
the Plaintiff's (“SEC”) response (#
49) and the Relief Defendants' reply (#
to the Amended Complaint (# 45), Defendant
Jeffrey Friedland is a longtime participant in the field of
medical marijuana. In 2014, Mr. Friedland purchased shares of
a company called OWC Pharmaceutical Research Corp.
(“OWC”), an Israeli company involved in the
business of medical marijuana research. In January 2016, Mr.
Friedland and his company, Defendant Global Corporate
Strategies (“Global”), entered into an agreement
with OWC by which Mr. Friedland would provide Investor
Relations Services to OWC - specifically, Mr. Friedland would
“writ[e] news releases, shareholder letters, corporate
summaries, ” and engaged in various other
communications with third parties to promote OWC. In
exchange, OWC would provide Global with a substantial
minority interest in OWC's stock.
not disclose the nature of its relationship with Mr.
Friedland, identifying him only as an “investor.”
Mr. Friedland also “made numerous statements promoting
OWC stock to investors without ever disclosing” the
nature of his agreement with OWC or OWC's payments to
January 2017, Mr. Friedland desired to sell Global's OWC
stock. Along with his wife, Relief Defendant Kathy Friedland,
he formed Relief Defendant Lane 6552 (“Lane”), a
business entity that Ms. Friedland would control but which
had “no apparent business purpose or operations other
than to receive and then sell Global's OWC stock.”
While Mr. Friedland was actively promoting OWC and informing
investors that his investment in OWC was “a very, very
long-term situation, ” he requested OWC's transfer
agent to remove the restrictive legend on the vast majority
of OWC shares held by Global and to reissue them to Lane.
contends that Mr. Friedland made various false
representations to the transfer agent about the cost of
Global's acquisition of OWC shares and the price that
Lane would pay Global to acquire them. The transfer agent
eventually reissued the shares to Lane, and Mr. Friedland
began attempting to sell the shares via Lane. He encountered
some difficulty with certain brokers and clearing firms who
were hesitant to complete the trades, and Mr. Friedland made
misleading representations to those brokers and agents in
order to induce them to sell the shares. Eventually, Mr.
Friedland, through Lane, retained a different broker (again
making certain false representations to that broker about
Lane's acquisition of the OWC stock), and in March 2017,
sold the bulk of the OWC shares through Lane. (Later, Mr.
Friedland made false representations that allowed another one
of his companies, Defendant Intiva Pharma
(“Intiva”), to remove the restrictive legend and
liquidate its own holdings of OWC shares.) All the while, Mr.
Friedland continued to promote OWC stock without revealing
his role in the business or liquidation of Global's
holdings in OWC.
the Friedlands used the proceeds of the sale of Global's
(then Lane's) OWC stock to purchase various pieces of
real estate, including a home in Snowmass, Colorado. They
later transferred title to the house to Relief Defendant
Aspen Upper Ranch (“Aspen”), and deposited funds
from sale of OWC stock into Relief Defendant The Jeffrey and
Kathy Friedland Irrevocable Trust (“the Trust”).
on these allegations, the SEC asserts claims against Mr.
Friedland, Global, and Intiva for securities fraud in
violation of the Securities Act, 15 U.S.C. § 77a, and
the Exchange Act, 15 U.S.C. § 78a; maintenance of a
scheme to defraud asserted under both acts, and various other
claims. As to the Relief Defendants, the SEC alleged that
they were liable for equitable disgorgement because they
received funds or property that were the proceeds of or
traceable to the securities law violations alleged against
the Defendants (apparently except Aspen) now move (#
47) to dismiss the claims in the Amended Complaint,
arguing that: (i) the SEC's claims fail to plead the
alleged fraudulent statements with particularity as required
by Fed.R.Civ.P. 9(b); (ii) the SEC fails to allege a
colorable claim under the Securities Act for failing to
disclose compensation because OWC, not Mr. Friedland, made
some of the offending statements, because the statements do
not “describe a security, ” because Mr. Friedland
sufficiently disclosed all of the pertinent information, and
because the SEC fails to adequately allege Mr.
Friedland's scienter; (iii) as to the securities fraud
claims under the Exchange Act, the SEC has not alleged any
material omission, has not sufficiently alleged Mr.
Friedland's duty to speak, and has not adequately alleged
scienter; (iv) the scheme to defraud claims are
insufficiently specific and are an attempt to evade the
pleading requirements for misstatements; and (v) the claim
against the Relief Defendants should be dismissed because
there is no allegation that they received a benefit at
Standard of review
reviewing a motion to dismiss pursuant to Rule 12(b)(6), the
Court must accept all well-pleaded allegations in the Amended
Complaint as true and view those allegations in the light
most favorable to the nonmoving party. Stidham v. Peace
Officer Standards & Training, 265 F.3d 1144, 1149
(10th Cir. 2001) (quoting Sutton v. Utah State Sch. for
the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir.
1999)). The Court must limit its consideration to the four
corners of the Amended Complaint, any documents attached
thereto, and any external documents that are referenced in
the Amended Complaint and whose accuracy is not in dispute.
Oxendine v. Kaplan, 241 F.3d 1272, 1275 (10th Cir.
2001); Jacobsen v. Deseret Book Co., 287 F.3d 936,
941 (10th Cir. 2002); Dean Witter Reynolds, Inc. v.
Howsam, 261 F.3d 956, 961 (10th Cir. 2001).
is subject to dismissal if it fails to state a claim for
relief that is “plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To make
such an assessment, the Court first discards those averments
in the Complaint that are merely legal conclusions or
“threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements.”
Id. at 678-79. The Court takes the remaining,
well-pleaded factual contentions, treats them as true, and
ascertains whether those facts (coupled, of course, with the
law establishing the requisite elements of the claim) support
a claim that is “plausible” or whether the claim
being asserted is merely “conceivable” or
“possible” under the facts alleged. Id.
What is required to reach the level of
“plausibility” varies from context ...