The United States District Court for the District of Utah recently found that a failure to allege a contractual relationship barred the plaintiffs’ Investment Advisers Act (the Act) claim as a matter of law.
The plaintiffs invested $1.65 million in a Ponzi scheme conducted by defendant Brian J. Smart. The plaintiffs alleged that Smart’s co-defendants Frank Winger, AIM Winger Corporation, and AIM Winger LLC, et al. (collectively, the Winger Defendants) failed to supervise Smart and aided and abetted Smart’s violations of Section 206 of the Act. The Winger Defendants moved to dismiss the claim, arguing that because the only remedy available to private plaintiffs under the Act is to void an investment advisers contract, and the plaintiffs alleged no contract with the Winger Defendants, the plaintiffs had not stated a valid claim.
The District Court agreed and granted the Winger Defendants’ motion to dismiss. It found that because the plaintiffs had not alleged a contractual relationship with the Winger Defendants, the plaintiffs could not state a claim for aiding and abetting a violation of the Act.
Padilla, et al., v. Winger, et al., No. 2:11 CV 897 (D. Utah Apr. 20, 2012)