The Securities and Exchange Commission brought an action against the senior vice president of a sporting goods company and four other individuals for the alleged misappropriation of material, nonpublic information about the company’s plans to acquire a competitor. The SEC alleged that the VP told his father, who told three of his friends, who in turn purchased shares of the competitor in advance of the acquisition and sold shortly after it was announced, collectively profiting approximately $160,000.
In denying the motion to dismiss of one of the defendant-friends, the Western District of Pennsylvania held that the SEC adequately pleaded its claims under the Supreme Court’s standard in Bell Atlantic Corp. v. Twombly. Under Twombly, the court must determine that the complaint’s factual allegations “raise a right to relief above the speculative level”. Furthermore, without some factual allegation in the complaint, a claimant cannot satisfy the requirement that he or she provide not only “fair notice,” but also the “grounds” on which the claim rests. The court also found that actions by the SEC need not satisfy the heightened pleading standards of the Private Securities Litigation Reform Act of 1995 (articulated by the Supreme Court in Tellabs v. Makor) because the SEC is not a private litigant. Because the allegations satisfied the Twombly standard as well as the requirement for pleading fraud with particularity under Federal Rule of Civil Procedure 9(b), the court held that the SEC had satisfied its pleading burden.
The court also rejected defendant’s contention that the action be dismissed for lack of personal jurisdiction because actions by the SEC are authorized under a nationwide service of process statute. Although only one of the five defendants was a Pennsylvania resident, the court held that actions by the SEC may be brought in “any forum within the United States,” without consideration of the defendant’s contacts with the state in which the court sits. (SEC v. Queri, 2009 WL 186017 (W.D. Pa. Jan. 26, 2009))