United States District Court, D. Colorado
THE ESTATE OF JON L. BOGUE, an Estate of a Deceased Individual, and VICKI L. McCORKLE, the Executrix of the Estate of Jon L. Bogue, Plaintiffs,
PATRICK S. ADAMS, an individual; SHARON E. ADAMS, an individual; JOHN ALAN FAVRE, an individual; SINH T. LY, an individual; RICHARD J. PRATI, SR., an individual; JOSEPH N. PECORARO, JR., an individual; CHOICE INVESTMENT MANAGEMENT, LLC, a Colorado Limited Liability Company; CHOICE CAPITAL MANAGEMENT, LLC, a Colorado Limited Liability Company; CIM SECURITIES, LLC, a Colorado Limited Liability Company; and PVG ASSET MANAGEMENT CORPORATION, a Colorado Corporation, Defendants.
MEMORANDUM OPINION AND ORDER ON DEFENDANTS'
MOTION TO DISMISS AMENDED COMPLAINT (ECF 53) AND
PLAINTIFFS' MOTION FOR ORDER DETERMINING NECESSITY OF
CERTIFICATE OF REVIEW [ETC.] (ECF 29)
L. KANE SENIOR U.S. DISTRICT JUDGE.
allege that Defendants violated Colorado statutory and common
law, committing securities fraud, racketeering, conspiracy,
breach of fiduciary duty in selling investments to Jon L.
Bogue (Bogue) and managing them on his behalf. Bogue is now
deceased, and the claims are brought by his estate and
executrix. The case is now before the Court on
Defendants' motion to dismiss Plaintiffs' Amended
Complaint. For the reasons discussed below, the Court grants
the motion in part and denies it in part.
Defendants filed a motion to dismiss Plaintiffs' original
Complaint, arguing among other things that Plaintiffs had
failed to allege their claims with sufficient particularity,
that their claims under the Colorado Securities Act (CSA)
were barred by the CSA's statute of repose, and that
Plaintiffs had not filed a certificate of review pursuant to
C.R.S. § 13-20-602 to support their claims that the
individual Defendants failed to comply with their duties as
licensed professionals. Plaintiffs opposed the motion to
dismiss and filed a motion asking the Court to determine
whether a certificate of review is necessary, and, if so, for
leave to file a belated certificate.
March 11, 2019, the late Hon. Richard P. Matsch granted
Defendants' motion to dismiss but granted leave to amend
to provide more specific allegations concerning
Defendants' respective roles in the alleged wrongdoing.
That ruling did not address Defendants' arguments raising
the statute of repose and the necessity of a certificate of
filed an Amended Complaint on April 10, 2019. ECF 47.
Defendants again moved to dismiss pursuant to Fed.R.Civ.P.
12(b)(6) and 9(b), once more arguing, inter alia, that the
allegations lack sufficient specificity, that the securities
fraud claims are barred by the statute of repose, and that
Plaintiffs' failure to file a certificate of review is
fatal to their claims.
OF THE AMENDED COMPLAINT
summary, and viewed in a light most favorable to Plaintiffs,
the Amended Complaint alleges the following:
who was born in 1939, worked during his lifetime as a flight
instructor, airline pilot, and commercial truck driver. He
retired in 2009, after which his income came from Social
Security and his retirement savings. He did not have
substantial investment expertise, experience, or
sophistication. He died on November 3, 2016. Am. Compl.
¶¶ 23, 35-45; 272.
individual Defendants except Sharon Adams (who is married to
Patrick Adams) are or were registered and/or licensed
professionals in the investment industry, variously Certified
Financial Advisers (CFAs) (Mr. Adams; Pecoraro); Certified
Financial Planner (Favre); Investment Adviser Representatives
(IARs) for one or more of the entity Defendants (Mr. Adams;
Favre; Ly; Prati); and/or securities brokers (Favre; Ly).
Id. ¶¶ 48-80.
individual Defendants held various positions as the
organizers, administrators, officers, “direct or
indirect” owners, and/or operators of the entity
Defendants. See Id. The entity Defendants were,
respectively, a licensed Investment Adviser in the State of
Colorado (IA) (Choice Investment Management, LLC); an
investment or hedge fund manager (Choice Capital Management,
LLC); a broker-dealer that provides investment advice and
facilitates the purchase and sale of securities (CIM
Securities, LLC); and an asset manager that provides
investment advice to customers (PVG Asset Management Corp.).
The entity Defendants were affiliated through common
ownership, operation, and management by the individual
Defendants in their respective roles. Id.
addition to their positions and roles in the entity
Defendants, Mr. and Mrs. Adams, Favre, Ly, and Prati were
also directors, officers, and/or owners of two other
non-Defendant entities, Maroon Bells of Colorado, Inc., and
Centennial Brands, Inc. Id. ¶¶ 53-54;
57-58; 65; 72-73; 77-78.
(collectively) “are the organizers, administrators,
managers and/or officers of a series of limited liability
ventures, referred to as Pooled Investment Vehicles”
(PIVs). Id. ¶ 19. The PIVs were generally
limited partnerships in which one of the entity Defendants
(Choice Capital) acted as general partner. Id.
¶ 94. Defendants, in their respective roles, offered and
sold interests in the PIVs, advised customers concerning
their PIV investments, and advised and managed the PIVs.
Defendants' alleged wrongdoing, the Amended Complaint
alleges that they knowingly and with an intent to defraud
their investor clients, perpetrated a complicated scheme
whereby they offered and sold securities and provided
investment advisory and broker-dealer services to clients,
while at the same time systematically manipulating the
investments they were selling for their own benefit and for
their own enrichment, to the detriment of their unsuspecting
and often elderly investors, who lacked investment expertise
and experience. Id. ¶ 18.
Bogue specifically, the Amended Complaint alleges on
information and belief that Bogue met Favre in the mid-1990s
and began investing his savings with Favre shortly
thereafter. Id. ¶ 38. The Amended Complaint
does not allege, in detail or even generally, the nature of
Bogue's investments with Favre in the years before
Favre's later affiliation with the other Defendants.
early 2005, Defendant Favre established a relationship with
Mr. and Mrs. Adams and Ly and their respective affiliated
companies, at which time they entered into an agreement for
Favre to promote and sell units in Defendants' PIVs for
compensation based on the amounts invested. Id.
¶¶ 135-36. In that same timeframe, acting “in
conjunction with” Mr. Adams, Mrs. Adams, and Ly, Favre
began soliciting Bogue, gained his trust, and sought to have
him invest his individual retirement account (IRA) and
non-qualified retirement savings in Defendants' PIVs,
which were high-risk investments. Exploiting Bogue's lack
of financial sophistication and using their respective
qualifications and licensure to provide legitimacy, those
Defendants established discretionary accounts for Bogue's
IRA and non-qualified retirement savings and placed hundreds
of thousands of dollars of Bogue's money in
Defendants' PIVs. Id. ¶¶ 22-23;
course of obtaining and using Bogue's investments in
discretionary accounts, and exercising their discretionary
authority over the accounts, Favre, Mr. Adams, Mrs. Adams,
and Ly allegedly completed subscription instructions without
seeking or obtaining Bogue's actual signature and without
disclosing the risks of the investment or providing all
required investment documents to Bogue, and fraudulently
obtained and used one or more Medallion Guarantees of
Bogue's signature to complete other investment documents,
all without Bogue's presence or knowledge. Id.
¶¶ 144-151. They knew that the amounts being placed
in high-risk private partnerships represented more than 70%
of Bogue's investable assets and over 50% of his net
worth. Id. ¶ 26. In recommending and placing
Bogue's money in these investments, the foregoing
Defendants failed to conduct any reasonable or good faith
inquiry into Bogue's investment objectives, financial
situation, and actual needs. Id. ¶¶ 143,
to this scheme, the “foregoing Defendants” put
Bogue in the following specific investments:
• October 5, 2005: $50, 000 in non-qualified retirement
funds in Cynergy CP, LLC;
• June 26, 2006: $50, 000 in IRA funds in Cynergy CP,
• April 9, 2007: $75, 000 in IRA funds in Cynergy All
• April 9, 2007: $75, 000 in non-qualified retirement
funds in Cynergy All Seasons;
• February 29, 2008: $30, 000 in IRA funds in Cynergy
• February 29, 2008: $75, 000 in non-qualified funds in
Cynergy All Seasons;
• April 16, 2008: $25, 000 in non-qualified funds in
Cynergy Healthcare Investors, LLC.
Id. ¶¶ 146-58.
5, 2008, Mr. Favre met with Mr. Bogue and, in doing so, made
a drawing and notes about Mr. Bogue's investments,
allegedly representing the value of Bogue's IRA, non-IRA,
and other sources of income at that time. Id. ¶
159 and Ex. 6. The Amended Complaint does not allege that any
information in this document was false, misleading, or
statements sent to Bogue show that as of September 30, 2008,
Defendants had placed nearly $250, 000.00 of Bogue's
money in Cynergy CP, LLC; over $45, 000.00 of non-IRA assets
in the Adams Market Neutral Fund, LLLP; and more than $45,
000.00 of Bogue's IRA assets in the Adams Market Neutral
Fund, LLLP. Id. ¶¶ 160-62.
February 6, 2017, letter from Defendants Prati and Choice
Capital Management responding to an inquiry from the Bogue
Estate reflected a total of $520, 199.34 of Bogue's IRA
and non-qualified retirement savings invested in
Defendants' PIVs. This letter also advised that the funds
in which Bogue's money was invested owned certain
non-liquid assets that required certain “liquidity
events” to occur before the funds could be liquidated.
Id. ¶ 184; Ex. 11.
recommending and operating the PIVs, Defendants “Mr.
Adams, Mr. Favre, Mr. Ly, Mr. Prati, Mr. Pecoraro and, upon
information and belief, Mrs. Adams, along with Choice
Investment, Choice Capital, CIM Securities and PVG Asset
Management” (that is, all of the Defendants) failed to
disclose conflicts of interest, their compensation
arrangements and the excessive amounts they were paying
themselves. Id. ¶¶ 165-69.
Defendants (collectively) failed to disclose affiliations
with related companies and other material facts concerning
companies in which Defendants' PIVs were investing or
making payments. For example, these included:
• Failing to disclose approximately $388, 023.00 in
brokerage commissions and other fees paid in 2005 by three of
Defendants' PIVs to CIM Securities (id.
• Encouraging selected investors, including two PIVs, to
participate in a “sell-back” of units of Cynergy
CP LLC in 2009, but failing to inform other investors, such
as Bogue, that the sell-back was occurring (id.
• Failing to disclose that between March 2011 and
October 2012 Cynergy Emerging Growth LLC and Cynergy
Healthcare Investors Fund, LLC 2009 invested $1, 425, 000.00
in Maroon Bells, a company in which Mr. and Mrs. Adams and Ly
were owners and officers (id. ¶¶ 171-73);
• Failing to disclose that between August 2012 and
August 2013 Cynergy All Seasons invested $570, 000 in
Centennial Brands, a company in which Mr. and Mrs. Adams,
Prati, and Ly were officers or affiliates or held ownership
interests (id. ¶¶ 174-75);
• Failing to disclose that interests held by
Defendants' PIVs in Life Care Medical Devices (Life Care)
were so substantial that they over-weighted the PIVs'
total interest in an extremely risky company such that
investors' interests could not be liquidated
(id. ¶¶ 176-78);
• Failing to disclose that 7, 597, 062 shares of Life
Care were held by Echo Resources LLC, a company owned by Mrs.
Adams and over which Mr. Adams exercised sole voting and
investment control; and that 1, 452, 500 shares of Life Care
were held by New Generation Resources, LLC, which was owned
by Ly and his wife along with Mr. and Mrs. Adams, and over
which Mr. Adams exercised sole voting and investment control
(id. ¶ 179-83);
• In the February 6, 2017 letter described above,
advising the Estate that certain events had to occur before
Bogue's interests could be sold, and representing that
they expected favorable market prospects for a Life Care
medical device, while failing to disclose that Prati had
filed a Form 8-K in 2015 stating that Life Care expected its
common stock to be deregistered in the near future for
failure to file timely reports and that the SEC had, in
October 2015, revoked the ...