Plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against an attorney who represented the co-defendant company, which allegedly offered and sold oil and gas securities in violation of state and federal securities laws. The defendant attorney mto dismiss, arguing that the complaint did not adequately allege scienter against him and, in any event, did not state a claim since there is no aideabettor liability under Section 10(b) or Rule 10b-5. The Court denied the motion, ruling that plaintiffs allegations satisfied the PSLRA’s scienter standaand that the attorney could be liable as a primary violator under Rule 10based upon the legal work he performed for the defendant company in connection with its offer and sale of securities.
With respect to the scienter issue, the Court found plaintiffs’ allegations that defendant “prepared private placement memoranda or offering documebehalf of [the company] which contained material misrepresentations” sufficient. Among other things, the defendant allegedly misrepresented the terms of an order issued by an Alabama court that prohibited the company from selling securities within the state by indicating merely that the defendanwere “currently negotiating” with the State of Alabama a “temporary” order. While recognizing that an inference could be drawn that the defendant wsimply negligent in making this and other misstatements in the offering documents, the Court found that “the inference that [he] acted with the requisite scienter is just as strong as the inference that he was negligent.
The court next rejected defendant’s aider and abettor argument. While agreeing that plaintiffs could not maintain an aider and abettor claim under Section 10(b) and Rule 10b-5, the court ruled that plaintiffs’ allegations that tdefendant prepared the allegedly materially misleading offering documentsconstituted the supply of information to potential investors in a sufficiently direct manner to provide a basis for primary liability under Rule 10b-5. Finally, the court also ruled that the defendant’s inclusion of a disclaimer in the offeringdocuments stating that he “ma[de] no representation as to the accuracy omaterials” would not “shield” him from liability if he knowingly made false statements in the offering documents. (Clayton v. Heartland Resources , Inc., 2009 WL 790175 (W.D. Ky. Mar. 24, 2009))