Plaintiff sued defendants, a limited liability company (the LLC) and its majority owner, for, among other things, violating Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiff claimed that he purchased a 40% interest in the LLC at a substantially inflated price in reliance on the defendants’ provision of materially inaccurate financial statements and projections relating to the LLC and the value of the majority owner’s guarantee. Defendant moved to dismiss the federal securities law claims, arguing that the LLC interests were not “securities” to which the Securities Exchange Act of 1934 applied and, even if they were, the complaint failed to meet the pleading requirements of the Private Securities Litigation Reform Act.
After ruling that the LLC interests were “securities” under the three-prong test established by the Supreme Court in SEC v. W. J. Howey & Co., the Court ruled that plaintiff’s allegations were deficient under the PSLRA in multiple ways. For example, although the plaintiff repeatedly alleged that defendants made materially “inaccurate” statements, the plaintiff failed to allege why the statements were inaccurate, how they misled plaintiff or what the casual relationship was between the statements and the plaintiff’s alleged injury. The Court further found that the plaintiff failed to allege facts “that strongly raise the inference” that defendants “acted with the intent to deceive, manipulate, or defraud plaintiff.” Accordingly, the Court dismissed the federal securities claims with leave to the plaintiff to replead. (Venezia Amos, LLC v. Favret, 2008 WL 410163 (N.D. Fla. Feb. 12, 2008)