Securities and Exchange Commission of the United States v. Laura

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

MEMORANDUM & ORDER

-against- 18-CV-5075 (NGG) (VMS)

JOSEPH M. LAURA, ANTHONY SICHENZIO,

and WALTER GIL DE RUBIO,

Defendants.

NICHOLAS G. GARAUFIS, United States District Judge.

Plaintiff Securities and Exchange Commission (the “SEC”) insti-

tuted this action against Defendants, alleging primary and

derivative violations of §§ 10, 15, and 17 of the Securities Ex-

change Act of 1934 and Rule 10b-5 promulgated thereunder.

(See generally Compl. (Dkt. 1).) The SEC alleges that Defendants

made false representations to induce third-parties to invest in

Pristec America, Inc. (“PAI”),1 a partial subsidiary of Austrian cor-

poration Pristec AG (“PAG”), and misappropriated invested

funds for their own benefit. (Id.)

Laura and Sichenzio (the “Moving Defendants”) move to dismiss

the complaint under Federal Rule of Civil Procedure 12(b)(6)-

(7), arguing that: (1) PAG and its CEO are necessary parties

within the meaning of Rule 19 and the SEC’s failure to join them

mandates dismissal, (2) many of the allegations in the complaint

relate to conduct that occurred outside of the governing limita-

tions period and should be struck, and (3) the complaint fails to

satisfy Rule 9(b)’s heightened pleading requirements. (Defs.

1 As noted in the complaint, there are two U.S.-based entities with this

name, one incorporated in New Jersey (“PAI-NJ”) and the other incorpo-

rated in Nevada (“PAI-NV”). (Compl. ¶ 8.) In keeping with the complaint

and motion papers, the court uses “PAI” to refer to both entities.

Mem. in Supp. of Mot. to Dismiss (“Mem.”) (Dkt. 37-1); SEC

Opp. to Mot. to Dismiss (“Opp.”) (Dkt. 37-8); Defs. Reply in Fur-

ther Supp. of Mot. to Dismiss (“Reply”) (Dkt. 37-10).)

For the reasons that follow, the motion is DENIED.

BACKGROUND

A. Statement of Facts

The following factual summary is drawn from the facts alleged

in the complaint, which the court generally accepts as true for

the purpose of adjudicating the Moving Defendants’ motion to

dismiss. See, e.g., N.Y. Pet Welfare Ass’n v. City of New York, 850

F.3d 79, 86 (2d Cir. 2017).2 Further, for the reasons discussed in

Section III, infra, this summary largely excludes allegations of

misconduct that occurred prior to June 2013.

PAI is the umbrella name for two U.S. corporations, PAI-NV and

PAI-NJ, that were, at all times relevant to the complaint, owned

in equal share by PAG and Innovative Crude Technologies

(“ICT”), a U.S. corporation owned in equal share by Laura and

Sichenzio that has no employees or independent operations.

(Compl. ¶¶ 17-18.)3 In 2010, ICT purchased a minority stake in

PAG. (Id.) PAG itself was established in 2006 to develop and

commercialize new technology to be used in connection with the

2 The Moving Defendants submitted a considerable amount of evidence in

support of their motion. (See Dkts. 37-2 to 37-6.) “It is a generally accepted

principle that the court is not limited to the pleadings on a 12(b)(7) mo-

tion,” Am. Ins. Co. v. Kartheiser, No. 17-cv-5545 (JMF), 2018 WL 2388533,

at *1 (S.D.N.Y. May 25, 2018) (citation omitted), and, accordingly, the

court has reviewed the materials in connection with its consideration of

the Moving Defendants’ motion to dismiss under Rule 12(b)(7). However,

insofar as the Moving Defendants rely on this evidence in support of their

Rule 12(b)(6) motion, the court declines to consider such materials except

to the extent that they are referenced in or integral to the complaint.

3 ICT was originally incorporated in February 2010 under the name “Pris-

tec America, Inc.,” before being renamed in October 2010.

refining of crude oil. (Id. ¶ 16.) One such technology is to facili-

tate “cold cracking,” a process for refining heavy crude oil using

pressure waves. (Id.; see also Mem. at 8-9.) Laura established PAI-

NJ and PAI-NV in September 2011 and September 2013 respec-

tively for the purpose of commercializing PAG’s technology in the

U.S., Canada, Mexico, and Colombia. (Compl. ¶ 18.) At all rele-

vant times, and at least until April 2017, Laura controlled PAI,

holding multiple corporate titles, including CEO, President,

Treasurer, and Board Chair. (Id. ¶¶ 13, 100.)

Laura first introduced Sichenzio to PAI/ICT in April 2010 alleg-

edly pitching it as a way for Sichenzio to recover over a million

dollars that Laura owed him in connection with an unspecified

failed real estate venture and personal loans. (Id. ¶ 19.) Sichen-

zio agreed to fund ICT’s purchase of an equity interest in PAG

and, at least until April 2017, held several positions within PAI,

including Vice President, Secretary, Vice Chairman, as well as a

seat on PAI’s board. (Id. ¶¶ 14, 19, 100.)4

The complaint alleges that Laura and Sichenzio fraudulently so-

licited investments in PAI from individuals and, further, that

Laura misappropriated a significant percentage of investors’

money for the benefit of himself and Sichenzio. For example, be-

tween June and September 2013, Laura and Sichenzio presented

prospective investors with revenue sharing contracts that repre-

sented that PAI “owns exclusive global rights” to PAG’s cold-

cracking technology and anticipated it would begin commercial

production “on or about April 1, 2014.” (Id. ¶ 63.) In reality, how-

ever, PAI never owned the technology and did not acquire a

4 Walter Gil de Rubio, who is also named as a Defendant but did not join

in the instant motion, also became involved with PAI at Laura’s behest,

allegedly with the goal of recovering approximately $850,000 that Laura

owed him as a result of unspecified “personal loans and other unsuccessful

business ventures.” (Id. ¶¶ 15, 20-21.) As Gil de Rubio has not joined in the

instant motion, however, the court omits further discussion of his role in the

alleged fraud described in the complaint.

license to use it until October 2014, when it entered into an

agreement with PAG under which PAI acquired an exclusive li-

cense to use the technology in the U.S., Canada, Mexico, and

Colombia with nonexclusive rights in the rest of the world. (Id.

¶¶ 64-65; see also Patent, Technology, and Know-How License

Agreement (Dkt. 37-3 at ECF 52-62).)5 The revenue share con-

tracts, moreover, contained projections indicating that investors

would receive astronomical returns without providing an expla-

nation for the basis of those returns or any cautionary language

indicating the numerous potential obstacles that the venture

might face. (Compl. ¶¶ 61-62.) Separate documents Laura

drafted and circulated to Sichenzio indicate contemporaneous

awareness on their part of the actual risks that they failed to dis-

close to prospective investors. (Id. ¶ 80.)

Laura and Sichenzio are also alleged to have repeatedly misrep-

resented to potential investors how their money was going to be

used. For example, all of the contracts presented to potential in-

vestors stated that PAI and/or PAG needed “working capital” to

fund the roll-out of the company’s technology, and Laura is al-

leged to have made specific oral representations to investors that

their money would be used for, inter alia, machinery, lawyers,

and accountants. (Id. ¶¶ 45-46.) In reality, however, “a signifi-

cant portion of the investors’ funds raised during this period were

used to pay for Laura’s personal expenses, to make payments to

Sichenzio . . . and to pay for businesses and debt unrelated to

PAI’s purported oil processing technology activities.” (Id. ¶ 48.)

Specifically, between May 2013 and January 2017, Laura alleg-

edly misappropriated at least $3.7 million, which is

approximately half of the investor funds that he had raised dur-

ing this timeframe. (Id. ¶ 49-51.) Laura used these funds on, inter

5 The court notes that the Moving Defendants dispute, among a great many

other things, that the license agreement was formed in October 2014 and

backdated to October 2013. (Mem. at 15.)

alia, payments to individuals and entities who provided no goods

or services to PAI, to settle a lawsuit against him in connection

with an alleged “real estate scam,” medical bills, gym member-

ships, and groceries. (Id.) In some instances, Laura and Sichenzio

deposited investor funds directly into personal bank accounts.

(Id. ¶ 52.) Defendants allegedly endeavored to conceal these ef-

forts by, among other things, not maintaining a complete set of

records, repeatedly failing to provide PAI’s accountant with ac-

cess to PAI and ICT’s respective bank statements, and allegedly

lying to regulatory agencies. (Id. ¶¶ 87-90, 96.)

After being removed from their officer positions at PAI, Laura and

Sichenzio allegedly continued to raise funds in PAI’s name, ac-

cepting $525,000 in “apparent investment funds” between June

and December 2017, most of which they allegedly misappropri-

ated for their own benefit. (Id. ¶ 100.)

B. Procedural History

The SEC initiated this action on September 7, 2018. The Moving

Defendants served their motion on March 29, 2019, and the mo-

tion was fully briefed on May 31, 2019. While the motion was

pending, the Moving Defendants filed several supplemental let-

ters, to which the SEC responded. (See Dkts. 38-39, 43-44, 48-

51.) Discovery was not stayed pending the resolution of this mo-

tion and remains ongoing before Magistrate Judge Vera M.

Scanlon.

THE MOVING DEFENDANTS’ RULE 12(B)(7) MOTION

Laura and Sichenzio contend that the complaint must be dis-

missed because PAG is an indispensable party “that is clearly

subject to jurisdiction here because it is actively arbitrating claims

that overlap with this action.” (Mem. at 9-10; see also id. at 9-

19.)6 Federal Rule of Civil Procedure 12(b)(7) permits a party to

move for failure to comply with the compulsory joinder rules set

forth in Rule 19. Rule 19 provides, in relevant part, that:

A person who is subject to service of process and whose join-

der will not deprive the court of subject-matter jurisdiction

must be joined as a party if:

(A) in that person's absence, the court cannot accord

complete relief among existing parties; or

(B) that person claims an interest relating to the subject

of the action and is so situated that disposing of the ac-

tion in the person's absence may:

(i) as a practical matter impair or impede the per-

son's ability to protect the interest; or

(ii) leave an existing party subject to a substantial

risk of incurring double, multiple, or otherwise in-

consistent obligations because of the interest.

The Moving Defendants contend that the allegations in the com-

plaint are factually incorrect and clearly based on false

information that PAG provided to the SEC. (See, e.g., Mem. at 11-

12.) The Moving Defendants also argue that because the claims

directly implicate the viability of PAG’s cold-cracking technology,

which is patented, this court should follow the rule applicable to

patent infringement actions, i.e., that all parties with an interest

in the underlying patent must be joined before an infringement

action may proceed. (Id. at 11 (citing, inter alia, Advanced Video

Techs. LLC v. HTC Corp., No. 15-cv-4626 (CM), 2016 WL

3434819, at *7 (S.D.N.Y. June 14, 2016)).) The SEC contends in

6 Laura and Sichenzio have indicated that the arbitration has since con-

cluded. (See Sept. 18, 2019 Letter from Moving Defs. (Dkt. 48).)

response that Rule 19 presumptively does not apply to its en-

forcement proceedings and that, in any event, PAG is not a

necessary party to this proceeding. (See Opp. at 14-17.)7

On the threshold issue, the court agrees with the SEC that Rule

19 is presumptively inapplicable to SEC enforcement proceed-

ings and, further, that the Moving Defendants have not made the

extraordinary showing required to rebut that presumption.

Congress entrusted the decision as to whether to institute en-

forcement proceedings under the Securities Exchange Act to the

SEC’s discretion. See 15 U.S.C. §§ 77t(b), 78u(d)(1). And, under

the rule announced in Heckler v. Chaney, an administrative

agency’s discretionary election not to institute enforcement pro-

ceedings is “presumptively unreviewable” absent a showing that

the decision in question was “so extreme as to amount to an ab-

dication of [the agency’s] statutory responsibilities.” 470 U.S.

821, 832-33 & n.4 (1985); see also 5 U.S.C. § 701(a)(2) (except-

ing from judicial review “agency action [that] is committed to

agency discretion by law”). Further, although there is no binding

precedent that speaks directly to whether Rule 19 can be invoked

in an enforcement proceeding, there is a long and consistent line

of persuasive authority holding that Rule 19 generally cannot be

invoked in SEC enforcement proceedings and, as far as the court

is aware, no court to have examined the issue has concluded oth-

erwise. See SEC v. Norsta Energy, Inc., No. 15-cv-4751 (WHP),

2016 WL 4530893, at *1 (S.D.N.Y. Jan 19, 2016) (collecting

cases); see also SEC v. Princeton Econ. Int’l Ltd., 99-cv-9667 (RO),

7 Laura and Sichenzio also argue for the first time on reply that PAG’s CEO

is also a necessary party. (Reply at 3-5.) Likewise, certain passages of Laura

and Sichenzio’s papers could be read as arguing that non-party Earle Re-

fining must also be joined as a necessary party (see Opp. at 21), a position

that they explicitly take in a subsequent letter (see Sept. 18, 2019 Letter

(Dkt. 48)). These arguments were not properly raised; however, were the

court to nonetheless consider them, it would reach the same conclusions

for the reasons stated herein.

2001 WL 102333, at *1 (S.D.N.Y. Feb. 7, 2001) (“The SEC and

the CFTC are the sole architects of their enforcement proceedings

and [Defendant] may not circumvent the exercise of agency dis-

cretion through compulsory joinder rules.”). The Moving

Defendants argue that these persuasive cases are inapposite be-

cause none involves the SEC suing individuals for securities fraud

without joining the company that issued the securities, as is the

case here. (See Reply at 5-7). The Moving Defendants fail, how-

ever, to account for the fact that these cases announce a rule of

general applicability and offer no persuasive argument as to why

that rule should not apply here.

Seeing no reason to depart from the reasoning of every other

court to have considered this issue, the court holds that Rule 19

is presumptively inapplicable to SEC enforcement proceedings

absent a showing of an abuse of discretion tantamount to an ab-

dication of the agency’s statutory responsibilities. The Moving

Defendants do not even meaningfully attempt to meet this stand-

ard, and the court has reviewed the supplemental materials

annexed to their motion and cannot discern any basis to support

such a significant finding.

Moreover, it is not at all clear that PAG would qualify as a neces-

sary party even if Rule 19 did apply. The Moving Defendants

make virtually no attempt to anchor their argument for PAG’s

joinder in the actual text of that rule or any relevant case law.

Indeed, they generally cite no case law beyond intellectual prop-

erty cases that have no application in this securities fraud

proceeding where neither the legal validity of PAG’s patents nor

any potential infringement of those patents is at issue. Boiled

down to its essence, the remainder of the Moving Defendants’

argument appears to be that the allegations in the complaint are

untrue, and that PAG is the source of those allegations, and that

PAG even misled the Moving Defendants themselves. Perhaps

they are right, and they will have ample opportunity to present

that case; the court, however, is unaware of any law to support

the proposition that PAG is therefore a necessary party to this

proceeding.8

Accordingly, Laura and Sichenzio’s motion to dismiss the com-

plaint for failure to join a necessary party under Rule 12(b)(7) is

DENIED.

THE MOVING DEFENDANTS’ RULE 12(B)(6) MOTION

Laura and Sichenzio also move for dismissal for failure to state a

claim, arguing that: (1) many of the allegations in the complaint

concern conduct that occurred outside of the applicable limita-

tions period and must be struck, and (2) the complaint does not

meet the heightened pleading standards of Rule 9(b). (Mem. at

19-25.)

A. Statute of Limitations

This case is governed by 28 U.S.C. § 2462’s five-year statute of

limitations. See Kokesh v. SEC, 137 S. Ct. 1635, 1639 (2017). Ac-

cordingly, accounting for the parties’ tolling agreements (see Dkt.

37-9), which the court assumes for the purpose of this motion to

be valid and enforceable, the SEC cannot obtain relief for any

conduct occurring prior to June 2, 2013. The SEC, for its part,

does not dispute any of this. (Opp. at 17-18.)

Contrary to the Moving Defendants’ contentions, however, the

“vast majority of alleged misconduct” did not occur outside the

limitations period. (Mem. at 19.) The complaint, in fact, alleges

extensive misconduct occurring within the limitations period.

8 The Moving Defendants’ argument that PAG is a necessary party because

they otherwise will be unable to obtain discovery because PAG is located

in Austria is likewise unavailing. This argument, in support of which the

Moving Defendants cite no case law, is directly contradicted by their claim

that PAG is “clearly subject to jurisdiction here.” (Mot. at 9.)

(See Compl. ¶¶ 42-103). As to the allegations of misconduct oc-

curring without the limitations period, the SEC asserts that these

acts will serve as inferential proof of the Moving Defendants’ sci-

enter. (Opp. at 18-19.) Specifically, the SEC relies on Nat’l R.R.

Passenger Corp. v. Morgan, 536 U.S. 101, 114-115 (2002) and

Chin v. Port Authority of N.Y. & N.J., 685 F.3d 135, 150 (2d Cir.

2012) to argue that the allegations of misconduct outside of the

limitations period is relevant background evidence to assess the

Moving Defendants’ timely acts of misconduct. (Opp. at 18-19.)

In their reply papers, the Moving Defendants entirely fail to ad-

dress the SEC’s argument as to this issue.

While the rule permitting courts to consider certain untimely

conduct as “background” evidence is well established in the con-

text of Title VII claims, the court is unaware of any instance in

which a court within this circuit has applied this framework to a

securities fraud action.9 There is no need, however, to resolve

this question at such an early stage of this proceeding, because,

as discussed below, the complaint would survive even if the court

were to consider only the timely allegations of misconduct. Like-

wise, because the underlying legal issue is not yet ripe for

resolution, there is no need for the court to take the drastic step

of striking the pre-limitations allegations from the complaint. The

SEC may gather its evidence of pre-limitations conduct, and the

Moving Defendants may, at the appropriate time, offer their ob-

jections to the relevance and admissibility of that evidence.

9 There is, however, one out-of-circuit decision supporting the SEC’s posi-

tion. See SEC v. Mapp, No. 16-cv-246, 2017 WL 5177960, at *5 (E.D. Tex.

Nov. 8, 2017) (permitting introduction of pre-limitations conduct “as evi-

dence in support of timely claims for violations of securities law” (citing

Morgan, 536 U.S. at 114-15)).

B. Rule 9(b)

1. Legal Standard

The purpose of a motion to dismiss for failure to state a claim

under Rule 12(b)(6) is to test the legal sufficiency of a complaint.

Patane v. Clark, 508 F.3d 106, 111-12 (2d Cir. 2007) (per cu-

riam). A complaint will survive a motion to dismiss if it contains

“sufficient factual matter, accepted as true, to ‘state a claim to

relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,

570 (2007)). “Threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suf-

fice.” Id.

Complaints that allege fraud must also meet the heightened

pleading standard set forth in Federal Rule of Civil Procedure

9(b), which provides that “[i]n alleging fraud . . . a party must

state with particularity the circumstances constituting fraud.” In

a securities fraud action, this requires a plaintiff to: “(1) specify

the statements that the plaintiff contends were fraudulent, (2)

identify the speaker, (3) state where and when the statements

were made, and (4) explain why the statements were fraudu-

lent.” ATSI Comms., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d

Cir. 2007) (citation omitted). “However, the rule is not intended

to be an insurmountable hurdle for claimants to overcome, but

was designed to afford defendants fair notice of the fraud alleged

against them.” SEC v. Power, 525 F. Supp. 2d 415, 423 (S.D.N.Y.

2007) (citation and internal quotation marks omitted) (altera-

tion adopted); see also In re Scholastic Corp. Secs. Litig., 252 F.3d

63, 72 (2d Cir. 2001) (“Even with the heightened pleading stand-

ard under Rule 9(b) . . . we do not require the pleading of

detailed evidentiary matter in securities litigation.” (citation

omitted)).

In alleging scienter, a plaintiff must plead facts giving rise to a

strong inference of fraud that is “at least as compelling as any

opposing inference one could draw from the facts alleged.” Tell-

abs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007).

This can be accomplished either “by alleging facts to show that

defendants had both motive and opportunity to commit fraud, or

by alleging facts that constitute strong circumstantial evidence of

conscious misbehavior or recklessness.” Novak v. Kasaks, 216

F.3d 300, 307 (2d Cir. 2000). However, “[c]onclusory allega-

tions of scienter are sufficient if there exists a minimal factual

basis giving rise to a strong inference of fraudulent intent.” SEC

v. Alt. Green Techs., Inc., No. 11-cv-9056, 2012 WL 4763094, at

*3 (S.D.N.Y. 2012) (citations and internal quotation marks omit-

ted) (alterations adopted).

Finally, although the question of whether pre-limitations conduct

may be used as evidence of scienter when assessing post limita-

tions conduct remains open, this court has previously held that

the SEC cannot pursue injunctive relief based entirely on pre-lim-

itations conduct. See generally SEC v. Cohen, 332 F. Supp. 3d 575

(E.D.N.Y. 2018). Accordingly, for the purpose of this motion, the

court first assesses whether the timely allegations, taken alone,

plausibly state a claim and, having concluded that they do, goes

no further.

2. Discussion

Although the Moving Defendants do not style their motion as one

for partial dismissal, they address only the SEC’s § 10(b) and

17(a) claims, and only in highly general terms. The court thus

limits its discussion to these claims and, further, addresses only

those arguments actually raised by the Moving Defendants.

“In general, to prove a claim under these provisions, the SEC

must show that the [Defendants]: (1) committed a deceptive or

manipulative act, or made a material misrepresentation (or a ma-

terial omission if the defendant had a duty to speak) or used a

fraudulent device; (2) with scienter; (3) which affected the mar-

ket for securities or was otherwise in connection with their offer,

sale, or purchase.” Power, 525 F. Supp. 2d at 419 (citation omit-

ted). Scienter, however, is not an element of a claim under

§§ 17(a)(2) or 17(a)(3), under which some of the claims against

Sichenzio are asserted. Id. (citing Aaron v. SEC, 446 U.S. 680, 697

(1980)).

As an initial matter, Laura and Sichenzio’s assertion that the com-

plaint “fails to give the specifics of the allegedly fraudulent acts”

(Mem. at 21) is puzzling considering the detailed lists of alleg-

edly false statements sprinkled throughout the complaint and the

reasons that the Moving Defendants knew or should have known

of their falsity. (See, e.g., Compl. ¶¶ 46, 49-58 (detailing specific

verbal misrepresentations made by Laura concerning use of in-

vestor funds and factual allegations supporting inference of

knowledge of or reckless/negligent disregard of falsity, as appli-

cable); id. ¶¶ 60-65 (detailing alleged misrepresentations in

revenue sharing contracts, including those drafted by Laura, and

contemporaneous communications supporting inference of

knowledge of or, as applicable, reckless/negligent disregard of

falsity); id. ¶¶ 69-83 (detailing additional oral and verbal misrep-

resentations and factual allegations supporting inference of

knowledge of or reckless/negligent disregard of falsity, as appli-

cable).10 Equally puzzling is the Moving Defendants’ assertion

that the complaint contains no allegations to suggest that the an-

ticipated production dates provided in some investor contracts

“conflicted with the information available to [the Moving] De-

fendants at the time.” (Mem. at 22 (quoting Tongue v. Sanofi, 816

F.3d 199, 213 (2d Cir. 2016) (alterations adopted)).) Indeed, the

complaint contains numerous specific allegations demonstrating

10 While the SEC does not always allege the specific date or time of each

such misrepresentation, contrary to the Moving Defendants’ contentions,

this is not fatal to the complaint. See, e.g., KCB Americas LLC v. Brazilmed,

LLC, No. 15-cv-4600 (AT), 2016 WL 900396, at *3 (S.D.N.Y. Feb. 26,

2016) (“Rule 9(b) does not require that a complaint plead fraud with the

detail of a desk calendar or a street map” (citation omitted)).

at least a plausible inference that the Moving Defendants knew

that these projections were baseless, including the fact that PAI

itself did not have cold-cracking units, the funds to build them,

or contracts to have them built, and that prior pilot tests of the

technology that PAG had conducted had taken a considerable

amount of time and yielded mixed results. (Compl. ¶¶ 77-78.)

This is in addition to the fact that Laura had documented his own

contemporaneous awareness of some of these risk factors and

shared them with Sichenzio. (Id. ¶¶ 80-81.)

Similarly unavailing is Laura’s argument that the funds he is al-

leged to have misappropriated were a “modest salary.” (Mem. at

24.) Laura relies on a single summary judgment case in which

Judge Castel noted that the business plan at issue in that case

indicated that money raised in connection with the relevant of-

fering would be used for, inter alia, “general working capital,

including salaries,” SEC v. Empire Dev. Grp., LLC, No. 07-cv-3896

(PKC), 2008 WL 2276629, at *2 (S.D.N.Y. May 30, 2008), to ar-

gue that his representation to investors that their money would

be used for “general working capital” necessarily encompassed

his salary. (Mem. at 24.) This argument is, to put it mildly, ex-

traordinarily weak, particularly in light of other precedent on this

issue. See SEC v. Research Automation Corp., 585 F.2d 31, 35-36

(2d Cir. 1978) (“What reasonable investor would not wish to

know that the money raised by stock sales would not be used for

working capital but be diverted to [the corporation]’s officers?”);

SEC v. Premier Links Inc., No. 14-cv-7375 (CBA) (ST), 2017 WL

7792702, at *5 (E.D.N.Y. 2017) (same). Moreover, even if the

court were to credit this argument (and ignore allegations that

Laura endeavored to recharacterize the funds he misappropri-

ated as loans from the company), a salary comprising half of the

total funds raised by investors cannot plausibly be characterized

as “modest,” so as to support the conclusion that, as a matter of

law, Laura did not appropriate investor funds.

In sum, this complaint is, if anything, more detailed than the av-

erage securities fraud complaint that would survive a motion to

dismiss. Again, it may well be the case, as Laura and Sichenzio

argue, that its allegations are simply not true and that PAG is the

real party at fault. (See, e.g., Reply at 8.) At this stage, however,

the court must accept the SEC’s representations as true and, hav-

ing done so, it can discern no basis for dismissal. Accordingly,

Laura and Sichenzio’s motion to dismiss the complaint under

Rule 12(b)(6) is DENIED.

CONCLUSION

For the foregoing reasons, Joseph Laura and Anthony Sichenzio’s

(Dkt. 37) Motion to Dismiss the Complaint is DENIED.

SO ORDERED.

Dated: Brooklyn, New York

March 24, 2020

_/s/ Nicholas G. Garaufis_

NICHOLAS G. GARAUFIS

United States District Judge